Questions tagged [call]

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70 questions
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How to make the arbitrage if intrinsic value is greater than European call value

It always says if the intrinsic value is greater than European call value, there will be a arbitrage opportunity，but how to construct the portfolio $(S_t - K)^+$ or how to make this arbitrage. By the ...
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Bachelier model call option pricing formula

Does anybody have the Bachelier model call option pricing formula for $r > 0$? All the references I've read assume $r = 0$. I don't speak French, so I can't read Bachelier's original paper.
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Fair value for a LEPO (Low Exercise Price Options)

In one of my lecture notes, I stumble across this exercise question: Consider Low Exercise Price Options, LEPOs, (with dividends) in Australia. Using the value at the outset, explain why such ...
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How to price a call option which depends on two Wiener processes?

Could someone explain to me why the regular call pricing formula works, just with $\sigma$ replaced by $\|\sigma\|$ in the case where the underlying asset depends on two Wiener processes? For example,...
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When a stock's price could suddenly drop to zero before expire. does black-scholes misprice the option? Too high or Too low?

Quantitative Question – BLACK SCHOLES Consider a call option on a stock. Assume that Black-Scholes prices the option correctly if all of the assumptions of Black-Scholes hold true. Assume in addition ...
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how to understand the zero vol condition in Heston stochastic vol model

I can't understand one of the boundary conditions in Heston's model: $$c(t,s,0) = (s-e^{-r(T-t)}K)^+$$ Why the current vol is zero can deduce such result. here $c(t,s,v)$ $s$ is current price and $v$ ...
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why is the delta of a short call option negative? [closed]

Why is the delta of a short call option negative? In Black-Scholes-Merton equation the delta of a call option is always a probability function therefore it does not imply such a consequence. How do I ...
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Equivalent form of Black-Scholes Equation (to transform to heat equation)

I am trying to understand the transformation of the Black-Scholes equation to the one-dimensional heat equation from Joshi, M. (2011). The Concepts and practice of mathematical finance. 2nd ed. ...
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Callable Bond = long Bond - call on bond?

Can someone verify (maybe there is some literature around) the following relationships? Callable Bond= Long on Bond + short on a Call Position --> PV(CallableBond) = PV(Bond) - Call on Bond? or ...
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The stock and bond under the Black-Scholes framework, no dividends: $$S_t=S_0e^{\sigma W_t+\mu t}=S_0e^{\sigma \tilde{W}_t +(r-\frac{1}{2}\sigma^2)t}$$ $$B_t=e^{rt}$$ where $\tilde{W}_t$ is $\mathbb{Q}... 1answer 99 views Qualitative properties of call I have read somewhere that we can show by using arbitrage argument the following relationship for call option : $$\frac{\partial{C_t(T,K)}}{\partial{K}}\leq0$$$$\frac{\partial^2{C_t(T,K)}}{\... 1answer 98 views Put call parity: when are the premiums the same? Please explain why put call parity could be compared to the payoff of a long forward contract. ie.$C_E-P_E=V_X(0)$where$C_E,P_E$are the call/put premiums and$V_X(0)$is the value of a long ... 1answer 2k views Use of cash delta vs forward delta and the mirror image rule There has been no mention in this text of why this formula uses forward delta not cash delta. Why should have this been obvious to the reader? How can a put be delta neutral at 30%, what does this ... 3answers 55 views buy asset after exercising call options Suppose that I buy a call option at \$10 for a stock $S_0 = \$100$,$K = \$110$, expiry date $T$. In $T$, $S_T = \$140$, so that I exercise the option to buy and then sell the assets (buy at$\$110$ ...
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I want to estimate delta, vega and gamma for a basket option. This option is a European Call option. The underlying is $S=\omega_1 S_1 +\omega_2 S_2$ Where: $S1$ = stock price of asset 1 $S2$ = ...