# Questions tagged [binary-options]

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### Arbitrage between one touch option and vanilla option

I recently came across this question, which is if you have a one touch option which the market has priced in X% of touching the barrier, and a vanilla call option on the same underlying and maturity ...
20 views

### Find expected rate of return without drift based on ito process

I would like to know how to solve question (ii), I know it is a cash-or-nothing option but I have no idea how to get the expected rate of return even I use put-call parity. Could anybody guide me I ...
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### What are the boundary conditions for an up-and-out binary call option of Bermudan type?

I know that an up-and-out binary call option of American type will never knock out if barrier is greater than the strike since the option stops immediately if the stock price touches the strike due to ...
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1 vote
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### how does prediction markets automated market makers work with examples?

I am trying to replicate the prices in prediction markets For example on below manifold calculates, how does new probability and payout estimate changes on manifold or on Futuur example similarly, ...
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### How to 'price' a binary option as a writer or seller of it?

So, suppose you use calls spread to approximately replicate the payoff and therefore 'hedge' the position of shorting a binary call. Suppose the binary call's time to maturity is 1 month. The ...
160 views

### What is your exposure when you sell a binary option

I recently made a post that was closed right away because it wasn't focused and asked too many questions. In that post, I asked five questions that were related but different. It looks like stack ...
1 vote
883 views

### Pricing a Digital Barrier Option using QuantLib in Python [closed]

I'm trying to price a EURUSD digital knockout in QuantLib/Python. Ideally would like to get the same output as this stylized Bloomberg OVML model (OVML EURUSD DIKO 1.0000P B0.9500 01/13/23 N1M). I ...
112 views

### Units when replicating a digital call with vanilla spread

This is an embarassingly basic question, but in the course of studying windmill adjustment in binary FX options, I unexpectedly got stuck figuring out the correct units. Say we have a domestic binary ...
223 views

### Difference of digital (binary) option price under normal and log-normal assumption

Here is the question asked in interview： What's is the difference of digital (binary) option price under normal and log-normal assumptions of spot? I think the log normal has fatter right tail than ...
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### Why can’t delta’s be used to price double no touch options?

Here is the link to a MATLAB one touch option pricing calculator I used:OT I tried several inputs and I noticed that the one touch option price is approximately twice the delta of an equivalent ...
257 views

### Clarity regarding Skew adjustment for binary options

I am reading the section on Skew adjustment for binary options on wikipedia (https://en.wikipedia.org/wiki/Binary_option#Skew) and am trying to get my head around it and gain some intuition. First ...
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1 vote
795 views

### The greeks, vanillas and digitals

Question 1: I know website’s like: https://optioncreator.com/ display the pricing and payoff graphs of regular plain vanilla puts and calls. I would like to know if there is any website that displays ...
221 views

### Option Pricing - Incorrect price outcome for Out of the Money (OTM) calls

I have the options data for a stock - ...
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1 vote
2k views

### Digital and binary put/call options

I'm looking for put-call parity for the call and put digital options, but I don't really know what is digital options and it's difference between ...
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1 vote
379 views

### Reason why a European binary call should be worth half of its American counterpart when driftless and out-of-the-money

Exercise 11 of chapter 8 of Mark Joshi's "The concepts and practice of mathematical finance", asks to compare prices of an American and a European digital (binary) calls when out-of-the-...
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### Pricing binary options

A binary option pays an amount of money if an event takes place and zero otherwise. Binary options are usually used to insure portfolios against large drops in the stock market. On March 25, 2021 the ...
685 views

### Intuitive explanation for the value of a binary option being lower when volatility skew is positive?

According to the formula for pricing binary options with a volatility skew, it appears that the value of the binary option for a given strike gets lower, the higher the volatility skew at that strike. ...
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284 views

### Why do Binary Options have a bad reputation?

Actually, I have no experience with binary options trading but on the internet, I see that people talk about them in a bad way. Why does binary options trading has a bad reputation? Thanks
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1 vote
193 views

### Cash or nothing option question [closed]

I got stuck in one exercise of binary options, it says that I have to consider a stock that does not pay dividends, the current price of the stock is 100, the volatility of it is 20%, the risk-free ...
2k views

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### Calibration using only strike price

I have a binary option and want to calibrate it's BS pricing model. I only have a series of Strike Price vs the Option price, no knowledge on time to maturity, volatility, risk free rate or the ...
1 vote
402 views

### What is the shape of the delta graph of the binary option?

I was wondering what the shape of the graph of the delta or the binary option would be.
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### Deriving the black-scholes formula for the European asset-or-nothing call option

I would like to find out what boundary/final conditions i should be using to find the formula for a European asset-or-nothing call option, as i feel that is where I'm making my mistake. I've read ...
868 views

### Bachelier Pricing Formula for Interest Rate Binary Options

Similarly to the Black and Scholes formula, I am looking to replicate Bachelier's caplet formula with two digital options: (1) asset-or-nothing (forward rate in this case) and (2) cash-or-nothing. For ...
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1 vote
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### Double knockout binary pricing?

I'm studying the pricing of a Double-Barrier binary option on the price of $S$. By this I mean an option that pays $X$ at maturity $T$ if the lower ($H1$) or upper barriers ($H2$) are not hit during ...
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### Where can I see the bid stack for FX?

In trading FX binary options on brief tenors like 1 hour, I frequently see the FX price bounce right on the expiry boundary, like hourly or 20 minute boundaries. I would like to figure out if these ...
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