Timeline for Valuing Option Credit Spreads
Current License: CC BY-SA 4.0
13 events
| when toggle format | what | by | license | comment | |
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| Mar 23, 2021 at 14:10 | comment | added | Kermittfrog | So this boils down to what you think is the measure according to which you want to specify this expectation. Without delving too much into the equation from your source above, you see that there is an implied volatility used, hence the formula is probably based on a risk neutral probability measure, hence a $\$$-expectation should be very close to zero. Thus, which measure do you want to base this upon? You could simulate the option pair's payoff by drawing from historically observed returns, our you could back the (implied or "real-world") probability of a positive gain or such... | |
| Mar 23, 2021 at 13:10 | comment | added | geofflittle | @Kermittfrog 1) Yes 2) Yes, we "expect" the expected value to be $0, but in practice when using real market data this is usually not the case. | |
| Mar 23, 2021 at 13:09 | comment | added | geofflittle | Thanks @Bob Jansen. | |
| Mar 23, 2021 at 12:24 | history | edited | user42108 | CC BY-SA 4.0 |
changed title to 'valuing option credit spreads' from 'valuing credit spreads' to avoid confusion
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| Mar 23, 2021 at 10:18 | comment | added | Kermittfrog | In my last comment, it was supposed to say discounted expected payoff. | |
| Mar 23, 2021 at 8:43 | comment | added | Kermittfrog | Hi, two follow up questions: 1) When you talk about credit spreads you mean equity option trading strategies that combine long and short positions in puts or calls on the same underlying and the same time to maturity but different strike prices? 2) When you talk about expected value, on which measure do you want to base this expectation? Trivially, the expected payoff value under the risk neutral / pricing measure should equal the strategy's value, and hence the expected value should be zero, no? | |
| Mar 23, 2021 at 8:06 | comment | added | Bob Jansen♦ | Should be better now | |
| Mar 23, 2021 at 8:03 | history | edited | Bob Jansen♦ | CC BY-SA 4.0 |
Remove breaks
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| Mar 23, 2021 at 6:45 | comment | added | Bob Jansen♦ | Probably an instance of meta.stackexchange.com/a/358356/266114 | |
| Mar 23, 2021 at 4:19 | history | edited | geofflittle | CC BY-SA 4.0 |
added 4 characters in body
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| Mar 23, 2021 at 4:10 | comment | added | geofflittle | I'm not sure why the latex equations are being broken-up onto newlines. If someone would make edits to fix that, I'd greatly appreciate it. | |
| Mar 23, 2021 at 4:07 | review | First posts | |||
| Mar 23, 2021 at 10:35 | |||||
| Mar 23, 2021 at 4:06 | history | asked | geofflittle | CC BY-SA 4.0 |