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Jul
21
comment How to calculate return rates with negative prices?
Black-Scholes seems to be not adequate. A displaced model may be more adequate. Of course, you may calculate an implied BS vol. What is your heeding strategy? What does your hedge do if prices are negative? The answers to these question should give the you the option prices. Not the blind believe in an inappropriate model...
Jul
21
comment How to calculate return rates with negative prices?
Is P the price or the return?
Jul
21
comment How to calculate return rates with negative prices?
If $P_{i}/P_{i-1} < 0$, then the assumption of log-normality is clearly wrong. You should consider an alternative model. Why do you think that absolute changes are not suitable? Why do you believe in log-normality so strongly? You may also consider a displaced log-normal model, like in the cited paper. If data with $P_{i}/P_{i-1} < 0$ is just a rare sample error, you may consider leaving that data out. Put it appears as if this is not the right way here...
Jul
21
comment How to calculate return rates with negative prices?
@Joao Serafim: This does not solve the explosion for $P_{i-1}$ becoming close to zero. You won't consider wiggeling around zero as such a huge vol, or do you?
Jul
21
comment How to calculate return rates with negative prices?
@Hebe: Which does not work if P(i-1) is zero. Actually (P(i)/P(i-1))-1 is just a finite difference approximation of the log-return.
Jul
21
revised How to calculate return rates with negative prices?
Texed it
Jul
21
answered How to calculate return rates with negative prices?
Jul
13
answered The reason behind the selection of a 1 standard deviation movement for self financing delta hedge
Jun
29
comment expected value of the discounted payoff
This is a statement. What is the question?
Jun
29
answered Stock prices using a monte carlo simulation with a normal inverse gauss distribution
Jun
17
comment Malliavin Calculus
I would suggest splitting this into two separate questions: one on Malliavin Calculus and one on Multi-Fractals Models. I could then maybe provide some comments on Malliavin Calculus: looking at the "proxy simulation scheme" technique can be useful, since it is a "discrete analog" (on the level of the discretization scheme, like Eurler scheme) of what Malliavin calculus does in the continuous setup.
Jun
10
comment Is the price of European put option monotone in volatility if we replace BM in Black-Scholes with a general Levy process?
What is the definition of "volatility" if you consider a general Levy process? If you define it as the implied volatility of the (respective) put option: then yes. It is trivial. The price is a monotone function of the implied Black volatlity.
May
27
revised Matlab; How to specify Coupon frequency for Interest Rate Swap
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May
27
answered Matlab; How to specify Coupon frequency for Interest Rate Swap
May
16
revised How to use Itô's formula to deduce that a stochastic process is a martingale?
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May
16
revised How to use Itô's formula to deduce that a stochastic process is a martingale?
added 55 characters in body
May
16
answered How to use Itô's formula to deduce that a stochastic process is a martingale?
May
13
revised Quadratic variation question
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May
13
comment Quadratic variation question
Ito actually tells you that $d(B^2) = BdB + BdB + dt$. So ii) might mean: Proof it using Ito, while iii) means proof it in an elemantary by repeating the proof of Ito for the special case of $B^2$.
May
11
revised how to derive yield curve from interest rate swap?
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