Questions tagged [binary-options]
The binary-options tag has no usage guidance.
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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 ...
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Buying a double no touch
Why does buying a double no touch get me long butterfly exposure? I understand short volatility exposure but can’t see why I would get long butterfly as I would’ve thought I would want wing volatility ...
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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 ...
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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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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 ...
user59094
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Option Pricing - Incorrect price outcome for Out of the Money (OTM) calls
I have the options data for a stock -
...
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430
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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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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 ...
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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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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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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 ...
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Why represent a digital payoff as a call spread
Pricing a digital caplet using Hull White model, which pays:
$1$ if $R>K$, $0$ otherwise.
Why would you represent the payoff as a call spread, i.e.
$$\text{Payoff} = \frac{(R - (K+\epsilon))^+-(R ...
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Issue in Pricing Binary Options using Heaviside Function and QuantLib Python
I am trying to price binary option using MC Simulation and Python QuantLib Library. The price of the option matches with the Analytical Engine. However, I am not sure how to incorporate the Heaviside ...
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Price of Binary Option using Explicit Finite Difference Method not matching with closed Form solution
I am trying to price the Binary option using Explicit Finite Difference Method. However, the output is not matching with the closed form solution formula.
Here is the code for the same:
...
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Binary Option Valuation With Skew
In searching for methods of valuation of Binary options with skew, I have found two formulas which are at odds. I cannot find any other references to this valuation formula. Should Vega be positive ...
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How to monetize ability to predict small stock movements smaller than spread?
For a relatively small subset of stock symbols I have been able to build a model that is able to 20-100 times per day consistently predict whether a stock is going up within the next 2 minutes, being ...
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A PARADOX? - relationship between risk reversal (slope of vol smile) and digital price
how do we resolve this seeming paradox?
lets take GBPUSD now: it has a negative risk reversal, ie putvols > call vols , because traders expect spot to fall, so they are buying puts, pushing their ...
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What is the effect of put call open Interest on price action
how option put call open Interest affects price actions as put sellers feel price when price goes down or call sellers feel pain when price goes up and how this affects price action. ie when price ...
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Show that $\frac{\partial c(t))}{\partial \sigma^2 }>0 \text{ if and only if } S(t)<Xe^{-r(r+\frac{1}{2} \sigma^2 )(T-t)}.$
Statement: if $c(t)$ is the price of the digital cash-or-nothing call option, then direct calculation (under Black-Scholes assumptions) shows that
$$\frac{\partial c(t))}{\partial \sigma^2 }>0 ...
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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 ...
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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 ...
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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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Fair value of a binary cash-or-nothing option with a barrier
I want to find the fair value of a European cash-or-nothing option that pays \$1 if $S_t>K$ and $S$ breached the level $M<0<K$, where $S$ is the risk-neutral process $dS_t=\sigma dW_t$.
My ...
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Binary Options: convert from "Cash or Nothing" to "Asset or Nothing"
I have a formula that uses Black-Scholes to compute the implied pricing of a "Cash or Nothing" binary option on the price of a currency.
The option is priced/traded in the same currency as S, K and ...
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Black-Scholes pricing of binary options
I'm trying understand something basic about Black-Scholes pricing of binary options. In my example above, the current price is over the strike price. The volatility is extreme but I'm still having ...
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Black-Scholes for Binary Option
Something is wrong with this python code designed to apply Black Scholes to the price of a binary option (all or nothing, 0 or 100 payout).
The results I get here is 0.4512780109614. Which I know ...
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Relation between one touch and binary option
Is there a relation between the price of a one touch option and the price of a binary option?
By one touch option, I mean an option that pays off a fixed amount if the price of the underlying is ...
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Flaw in the following argument with Binary Options and Skew
A Binary option is ATM and expires tomorrow. If the skew of the vanilla options steepens (left side up, right side down) what happens to the price of the Binary Option.
I know that using a ...
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Using a call-spread to hedge a digital option
I have a digital option that pays out \$1M at time $T$ if the price of the underlying stock is higher than \$1300 (with current price ~\$1000) and, obviously, zero otherwise. I am in the Black-Scholes ...
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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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Binary option analytical formula
Given $r=0$, $\sigma(K)=\text{const}$ and:
$$ \text{Binary} = \lim_{ε → 0} \frac{(C(K,\sigma (K))-C(K+ε,\sigma(K+ε)))}{ε} $$
I have to find the analytical expression for the above.
Since $σ(K)=\...
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Pricing for an Odd Type of Asset or Nothing Option
Trying to derive the pricing function for a derivative on two assets $S^1$ and $S^2$ with the following payoff function:
$$\Phi(S^1_T,S^2_T)=S_T^1 \, \unicode{x1D7D9}\{S_T^2\le K\}$$
where I'm ...
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Payoff of an odd indicator of one stock being greater than another
Suppose $S_t^1$ and $S_t^2$ are two stocks following GBMs and have current value $s_1$ and $s_2$ respectively. How can I explicitly compute the payoff
$$
V(t,s_1,s_2)\triangleq \mathbb{E}\left[
1_{\{...
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How do binary options broker hedge themselves against losses?
My question refers to the fact that, for most part, binary options are basically gambling, but not to the full extent. Due to the advanced models, capital anomalies like Momentum and possibly technial ...
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Greeks(theta) of a Down-and-Out barrier option
I am trying to figure out the theta for a down-and-out barrier put option. After some research of my own, I found out that a down-and-out put can be expressed as
$$
P_V(S_0, S_0)-P_V(S_0, H)-(S_0 - H)...
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Barrier digital options and pricing
What do you call options which behave like barrier options but for a digital option?
That is, given $0 < t < T$, then if $S_t > K_t$, the binary option $B(K_T,T)$ comes into play, i.e. which ...
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Asset-Or-Nothing call option price with skew
I have never seen a formula browsing the web for an asset or nothing option price when skew is accounted for. I am surprised I do not see something for this which should be standard in FX since ...
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Risk management for Digital Option at large Bank
Say, an investment bank sell Digital Call Option to its client at strike 100.
But trader at the bank want to book the deal with a call spread at 99/100 (price&hedge Digital Option like price&...
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Close prices discrepancy between binary.com, google, yahoo and wsj?
My algorithm needs to extract the forex data of the last 48h (hourly) to get the last close price and to calculate the MACD.
I use Google Finance api becouse is the only which provides free forex ...
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Computation of limit
In Delta of binary option,
I do not see how to prove that the limit of $\partial C_t/\partial S_t$ is equal to $+\infty$ as $t \rightarrow T$. Can someone help ?
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Pricing Secured Barrier Call
A European barrier call with barrier $B = 50$, expiration $T = 31$, and strike $K = 33$ costs $12$. The investor is interested in a product that, unlike this barrier call, offers some protection for ...
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Pricing Exotic options
I am stuck at a assignment problem where I have to compute the price of an exotic option.
I am given the values the prices of option $C(X;k) = E[max(0,X_T - k)]$ for different strike prices $k$ and ...
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Justification for Binary Option's Infinite Delta?
First time poster here. Glad to be here. I just graduated with an MSc in computational finance.
I recently read a question by another user about the delta of an at-the-money binary option as it ...
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How are bets and high-risk investments conceptually different, and how does this apply to binary options?
They look pretty similar to the layman's eyes: You have to pay something, and then a non-deterministic (or non-fully-known) event occurs. Such event has a (perhaps unknown) probability of occurring ...
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Binary Options hedge Forex position
if I am short GBPJPY and it start to jump up, instead of closing it, could I use Binary Options to long it immediately after jump up? So I could hedge current Forex position if possible.
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Arbitrage opportunity in discrete time
Say we have the following binary option $B$ on asset $S$ with strike K and expiration time T, assume also that the following relation holds at time $0$:
$B > N*C(K,T)-N*C(K+1/N,T)$
Where $N$ is ...
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