Linked Questions

17 votes
4 answers
14k views

What is the importance of alpha, beta, rho in the SABR volatility model?

I just read that SABR model is a stochastic volatility model, which attempts to capture the volatility smile in derivatives markets. The name stands for "stochastic alpha, beta, rho", referring to the ...
user330060's user avatar
3 votes
3 answers
4k views

FX Option pricing on Forward vs. Spot

In a GBM world with riskless domestic and foreign interest rates, what would be the correct model for a FX plain vanilla option given the statement that this option is priced on the forward? I guess ...
Tim's user avatar
  • 163
6 votes
2 answers
4k views

Garman-Kohlhagen (Black-Scholes) Formula vs. Bloomberg OVML Calculator

I'm trying to price a European call option on USDJPY. We have that $S = 112.79, K = 112.24, \sigma = 6.887\%, r_d = 1.422\%, r_f = -0.519\%, T = 0.25$. My model, based on Black-Scholes, returns the ...
Vladimir Nabokov's user avatar
6 votes
2 answers
1k views

how to calculate vega in stochastic vol?

since vega is defined as option value changes regarding the implied vol parallel shift, how is vega defined or calculated in stochastic vol models since implied vol is not an input there? thank you.
Odyssey's user avatar
  • 131
3 votes
4 answers
4k views

Premium Adjusted Delta in fx market

Please explain the concept of premium Adjusted Delta in FX market. In EURUSD, why delta changes if premium currency is changed from USD to EUR and how this new delta is related to the old one with ...
Ussu's user avatar
  • 585
3 votes
2 answers
4k views

Using FX ATM/RR/BF Volatility to Estimate Smile

Suppose $S$ is some FX rate, EUR/USD say, and $\sigma_{S}(K,T)$ is the implied volatility for some option written on $S$, sourced from the surface $\sigma_{S}(\cdot,\cdot)$ (alternatively, consider ...
Sargera's user avatar
  • 632
1 vote
1 answer
4k views

FX Spot Delta market standard calculation (Trader View)

I am just writing my thesis about FX instrument and hedging and one question popped up which I can't solve. Maybe it is silly but cant find anything about it how the delta of a fx spot is defined and ...
NewNY1990's user avatar
  • 107
1 vote
1 answer
2k views

Why is implied volatility often higher for OTM/ITM european call options than ATM? [closed]

I am working on some Black-Scholes stuff and currently investigating implied volatility (IV). I understand that the typical volatility smile can be viewed as a criticism of the assumption about ...
quant_son's user avatar
1 vote
2 answers
620 views

FX option quotation in interbank market

I am looking at the different ways in which FX options (say EUR/USD option) are quoted in interbank markets. Is it quoted using the option chain? I also saw a piece where it is said that it is quoted ...
Rejath Johny's user avatar
3 votes
1 answer
2k views

Smile Strangle and Market Strangle

What is the difference between Smile Strangle margin and Market Strangle Margin in fx derivative market? Is it just variation in convention or is there any mathematical relationship between the two?
Ussu's user avatar
  • 585
4 votes
1 answer
1k views

FX Option Price Quotation

I'm trying to replicate the following FX vanilla option pricing exercise (and the conversion between the quote types), taken from Wystup (2006). A call's value today is well-known given by BS / ...
KevinT's user avatar
  • 645
0 votes
2 answers
343 views

Requesting for price?

Just for education purpose. Assuming I have some trading ideas that involves the use of OTC derivatives but I may not be able to put them into practice due to regulatory issues and huge minimum ...
user avatar
3 votes
3 answers
962 views

Vega in a "constant volatility" Black-Scholes world?

A little confused, I consulted the Wilmott forums for guidance on how I can interpret vega/vomma. Another user's post reminded me that the Black-Scholes model assumes that the underlying has constant ...
New Guy's user avatar
  • 33
2 votes
2 answers
255 views

Does fear or greed drive option prices?

Frequently we hear that implied volatility being higher (as measured by VIX) indicates fear in the stock market. It is assumed that investors buy more puts for downside protection, driving put option ...
Snowball's user avatar
  • 191
0 votes
1 answer
641 views

Implied volatility and realized volatility

There are many articles and posts here claiming that the implied volatility is the expectation of future realized volatility. I don't understand. To begin with, isn't implied volatility homogeneous to ...
SuttNFG's user avatar

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