# Questions tagged [derivatives]

A financial contract whose payoff is linked to the evolution of an underlying security.

505 questions
Filter by
Sorted by
Tagged with
66 views

### Should we use the conditional expectation to write the value of an option?

So, I've just started looking into financial mathematics and the following question keeps bugging me. From what I understood, if the market is arbitrage-free and a given contingent claim of value $h$ ...
122 views

### Why is there a lot of focus on derivatives pricing and much less on stock pricing?

I am a quantitative finance student, and during the first year of this Master’s Degree I couldn’t help but notice that there’s a lot of focus on derivatives pricing and little or none on stock pricing....
1 vote
52 views

### Difference between closed form binomial option value and monte carlo simulation

I am trying to calculate the price of a European call option using both the the closed form expression and a monte carlo simulation. But the value's I get from both these methods are not the same: ...
58 views

77 views

### What do "heating degree day" prices actually measure?

The futures for Dallas Heating Degree days for July 2022 are trading around 6.83 But Dallas is hot in July and does not typically get any heating degree days So, what does the 6.83 for July 2022 ...
• 99
17 views

### Book recommendations for derivatives [duplicate]

I would like to ask you, if you could suggest me a good book regarding derivatives. Specifically, i would like a book which is more focused on how the derivatives are working and traded in practise ...
1 vote
55 views

### What is the optimal time for exercising American call and put option?

A 9 month American option (underlying) is known to pay dividend of USD 1 and USD 0.75 at the end of the ...
• 11
1 vote
59 views

### How to price an Equity Structured products [closed]

I'm new to equity structured products, I understand the overall construction but I want to have an example of an equity structured product with the steps of creation from seller point view of this ...
• 466
51 views

### Some thoughts over risk-neutral pricing vs real world expectations

I am trying to connect risk-neutral and physical measure expectations, to understand the difference between a no-arbitrage price and an expected terminal value. Imagine I have a European derivative ...
• 111
188 views

### When does the underlying become the derivative?

Since options contracts are created by open interest in the contract, it is conceivable that the notional of the total options contracts can exceed the value of the underlying. If that happens, does ...
• 5,295
31 views

### I am struggling to prove how when volatility tends to infinity, call option is equal to St and pt option = Ke-r(T-t) [duplicate]

I know how to prove when volatility tends to infinity but i am struggling to prove this. Can anone help?
56 views

### How can I hedge basis risk?

Let's say we caught arbitrage between spot and futures, we sold futures and bought spot. The risk-free rate is 5%, and our arbitrage position profit is 5.5%. When the interest rates increase to 6% ...
• 321
40 views

### Equivalent martingale measure and derivative pricing [duplicate]

So I just recently saw in class that to price a derivative you use what is called an equivalent martingale measure which allows you to compute the price of the contract which then will be the expected ...
129 views

### Empirically validating GBM assumptions

I'm trying to get a better grasp on the suitability of Geometric Brownian Motion as a model for asset prices, and I've stumbled across a hurdle which I can't seem to get over. Assuming GBM, the asset ...
59 views

• 11
42 views

### Impact on dividend on a autocall

Can someone explain me the impact of the dividends on an autocall structure please ? Is it going to increase the price because of the Short PDI in the structure ?
63 views

### Pricing squared derivative: Equating S^2 + a strip of otm calls + a strip of otm puts = only calls

In Peter Carr, Dilip Madan, Towards a Theory of Volatility Trading, 1998, (also derived here by Gordon), both calls and puts are used to replicate any twice differentiable payoff. I suppose one would ...
• 123
53 views

### Is there anyone trading Then-Current Treasury Forward?

The treasury forward traded for those on-the-run or off-the-run makes sense. You simply trying to hedge the treasury bond already issued by calculating the forward price of the bond. I was wondering ...
1 vote
132 views

### To gamble or not to gamble! (solving a system of ODEs maybe?)

Assume we have some money. At every point in time $0\le t \le T$, we can take either action 1 that is to keep our money until $T$ say in a bank and have an expected return of $f(t)$ or take action 2 ...
30 views

### Market Risk - credit v. equity

I am requesting language for the use of derivatives in a portfolio. The goal is to allow the use of derivatives only in instances where the portfolio aggregate market risk exposure (post ...
125 views

### Hybrid Derivatives Modelling

Could you please recommend any good books and papers that thoroughly describe the pricing and modelling of Hybrid derivatives? I.e. this question is a "big list" question, the more the ...
• 5,106
123 views

### Clarification on how synthetic CDOs work

According to my understanding, synthetic CDOs are essentially credit default swaps (CDS) for a bunch of loans, stored in a special purpose vehicle (SPV). Here, the investor (the one who buys the ...
• 53
1 vote
116 views

### How does $(d_2/\sigma) = (1-d_1)$ while deriving the Vanna Formula from BSM? [closed]

Just realized there was a quant finance board, so I figured I'd post it here instead. I'm trying to derive Vanna from the Black-Scholes Model (BSM) equation, but had a hook up on one of the ...
1 vote
66 views

### Discounting power derivatives

My question is whether power/energy derivatives should be discounted or not. I've heard both yes and no from practitioners but I still don't have a strong or clear opinion about it. Derivatives are ...
• 302
1 vote
43 views

### Assymetric Rate Distribution

The pandemic has disavowed any notion of nominal rate distributions to being truncated at 0%. However, if Central Banks at Debtor nations are conflicted in that they are incented to suppress interest ...
• 5,295
119 views

### Why Do I Need to Scale Options Vega w.r.t T (Time till Expiration)

In the book that I am using, it said that I need scale vega according time with this formula: $\sqrt{90/T}$ to get the weight of the vega w.r.t t. The reasoning it offered is as follows: "...
93 views

### Understanding the expected value of the average

I've been looking into Asian Options pricing. Part of the process is about looking for the expected value of the average of a time series undergoing e.g. geometric brownian motion. I came across this ...
1 vote
125 views

38 views

### QuantLib python: CAD IRSwap Conventions [duplicate]

The standard Canadian interest-rate swap convention for the float leg is payment frequency of semi-annual with reset frequency (CDOR3M) of every 3-months. It is not apparent this convention is ...
238 views

### Quantlib USDLibor() method

I'm attempting to shift both a discount and projection curve but am having trouble passing through the VanillaSwap() because of the Ibor input requirement -- I'm trying to calculate the dv01 of a US ...
79 views

### Why would one need forward prices to perform derivatives pricing?

I am trying to understand the purpose of inputs the software of my company is using. Amongst others it needs calibration instruments, a model type, initial values of the respective underylings and a ...
• 151
31 views

### Arithmetic Asian options on two commodities

I am pricing a November-December Asian option on steel via Monte Carlo simulation. I intend to simulate daily prices for the Nov contract from today through end of November, and from today through end ...
• 555
142 views

### Why should the Discount Curve be risk-free?

I have read up about the discount curve that is being used to value securities. The multi-curve methodology for valuing derivatives was mainly adopted because LIBOR was no longer seen as a proxy for ...