# Questions tagged [binary]

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### The shape of the volatility smile for bimodal outcome

Let's say that we have a biotech company that awaits FDA approval. In the case of approval the company gets a cash injection and in the case of denial it is pretty much bankrupt. Clearly, this is a ...
• 73
1 vote
144 views

### Hedging/Arbitrage with multiple period binomial tree

Plenty of material is written on how to hedge/arbitrage option price in one period binomial model, but I cannot find anything about hedging in multiple periods. If one to use multiple periods binomial ...
• 121
1k views

### Can someone explain rigorously Taleb's criticism of Nate Silver's election forecasting?

Taleb makes the claim in this paper (and others) that there exists some sort of bound on the variance of a binary forecast such that if a forecaster's binary predictions exceed the bounds on variance ...
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116 views

• 929
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### Why do we only need to buy or sell stock to hedge when the underlying is close to the strike?

Delta mesure the slope of the digital option.It also provides hedging information. Why do we only need to buy or sell stock to hedge when the underlying is close to the strike?
2k views

### Is the delta of a binary option the same as the delta for a regular European option?

Assume both options have strike of 100, same time to expo, no dividend, same interest rate, same vol and lets say underlying is trading 95. Do both have the same deltas? I read this and still don't ...
• 677
2k views

### Hedging a binary option close to expiry

I have been asked to prove mathematically that a binary option close to maturity should be hedged using a call spread with the same maturity. I understand that far from maturity, one would use delta ...
4k views

### How to derive the price of a square-or-nothing call option?

At maturity $T$, the holder of a "square-or-nothing" call option written on an underlying $S_t$ receives a payoff of the form  \phi(S_T) = \frac{S_T^2}{K} \pmb{1}_{\{S_T \geq K\}} = \begin{cases}\...
• 111
7k views

### Greeks for binary option?

How to derive an analytic formula of greeks for binary option? We know a vanilla option can be constructed by an asset-or-nothing call and a cash-or-nothing call, does that help us? Wikipedia states ...
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80 views

### Is the price of a binary call not monotonous with vol for OTM

Is this true and how would you prove it
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