Questions tagged [call]

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1 answer
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Why is this inequality strict for arbitrage argument for European call?

in the notes about arbitrage arguments I am reading, I notice the statement We can also see that $$C^E_t>(S_t-K\mathrm{e}^{-r(T-t)})^+$$ Notice that the inequality holds STRICTLY! I don't ...
• 163
0 votes
0 answers
44 views

Can the Feynman-Kac formula be used for asset classes that don’t have options?

So rather than a call option C(S_t,t) we have some type of asset with asset price is given by S(x,t) where x is any type of variable that the asset price depends on. I.e Price of wooden desks, W(x,t) ...
0 votes
0 answers
91 views

How to apply the Spanning Formula (Carr-Madan) on European Call-option?

In the paper Optimal positioning in derivative securities (Carr & Madan, 2000) the so-called "Spanning Formula" for replicating payoffs is presented in section 2.1 as equation (1). It ...
• 339
1 vote
0 answers
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local volatility not reasonable

We are going to generate synthetic option prices using a Heston model, i.e., $$\begin{gather*} dS_t = \sqrt{v_t} S_t dZ_t,\\ dv_t = \lambda (\mu - v_t) d_t + \eta \sqrt{v_t} dW_t, \end{gather*}$$ ...
0 votes
1 answer
69 views

Pricing for basic option strategies [closed]

If I am trying to price a strategy, say for example a call spread where we are long a call, strike L and short a call strike M, would the pricing formula simply be the Black-Sholes price for the Call ...
1 vote
1 answer
144 views

0 votes
0 answers
30 views

Deterministic optimal call time

Consider a American Option on a linear payoff i.e., if called at time $T$, it pays off $S(T)$, the stock price. Is the optimal call time of such an option determinsitc? Is there an intuition to the ...
• 1,662
0 votes
1 answer
46 views

Can the spread between option premium for bull call spread change over time?

I have created a bull call spread. There was spread of 70 dollars between the option premium of 2 strikes I selected. Now the spread between option premium of 2 strikes is greater than 100 dollars. ...
• 35
2 votes
1 answer
747 views

• 1,002
1 vote
0 answers
541 views

Black Scholes Replicating Portfolio Riskfree Asset

Im having a question about this standard derivation of the Black-Scholes formula: http://www.soarcorp.com/research/BS_hedging_portfolio.pdf The paper states $$C=\Delta S+B$$ and finally \$\Delta = ...
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