310 reputation
11
bio website
location
age
visits member for 11 months
seen 11 hours ago

Mar
17
revised Call option on a Mutual Fund
use of CAPM approach as proposed real world discounting
Mar
13
accepted Call option on a Mutual Fund
Mar
12
revised Call option on a Mutual Fund
added 628 characters in body
Mar
12
comment Call option on a Mutual Fund
Thanks again Brian. You are of course right regarding the hedging vs replication strategy. I have just one last question, but it is a bit long for a comment, I will update the original question.
Mar
11
comment Call option on a Mutual Fund
Second comment: If I use the real-world distribution, and the price of risk is modeled as $\frac{\mu-r_f}{\sigma}$ in a GBM framework, could you please elaborate how this choice revert to the Black-Scholes formula with a risk-free rate $r_f$ drift. I think I am missing something here.
Mar
11
comment Call option on a Mutual Fund
Thanks Brian, just two comments: First, since the option is a European call, the hedging strategy will require having a non-negative amount of underlying units in the portfolio. Therefore the no shorting constrain may have limited effect on the hedge. In addition, the fund has daily NAV and units can be bought/sell daily. Do you think this is enough to argue that a drift $r_f$ is more appropriate in this case?
Mar
11
asked Call option on a Mutual Fund
Mar
4
comment Algorithmical replication of a profit and loss function using different options
The link don´t work for me: "Page cannot be crawled or displayed due to robots.txt". Any idea how to get past this?
Jan
22
answered Lookback option explicit formula using Black Scholes
Jan
17
revised Inflation modelling
deleted 3 characters in body
Jan
17
asked Inflation modelling
Dec
12
revised Implied dividend estimation
added 11 characters in body
Dec
12
comment Implied dividend estimation
Hi Algos, thanks for your comment. So, if I already have an appropriate discount rate, could I just use the proposed approach to recover the implied dividends from dividend futures? Or are there any other factors / adjustments that I might be missing?
Dec
11
awarded  Citizen Patrol
Nov
20
awarded  Critic
Nov
13
comment How to estimate real-world probabilities
@vonjd: There are several answers that I like and upvoted. However, I think current answers still lack some details. For instance, even if estimating $\mu$ is the main driver behind real-world evolutions, if you just substitute $\mu$ by $r$, but all other parameters are left unchanged, the proposed evolution will not be calibrated to current market prices. Therefore, if calibration (i.e.: no arbitrage conditions) is still necessary to estimate real-world evolutions, which other steps are need once you have already estimated $\mu$?
Nov
13
revised How to estimate real-world probabilities
deleted 96 characters in body
Nov
11
awarded  Scholar
Nov
11
accepted Recovery rate in a structured bond
Nov
8
revised Recovery rate in a structured bond
clarified question