Questions tagged [derivatives]
A financial contract whose payoff is linked to the evolution of an underlying security.
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37 views
Is there an analogous strikeFromDelta implementation for 1st gen barrier options?
I have a simple replication pricing implementation for 1st gen exotics (digitals, single and double barriers, etc.). In order to effectively test strategies I want to price "like" strikes ...
2
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0answers
51 views
Name for option valued by a time difference
Is there a name for an option whose value is determined by a time difference?
I mean a derivative whose contract reads something like, "If stock $X$ goes below $Y$ at time $T_1$, and $T_1$ is ...
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1answer
36 views
How to price a set of cashflows from which the buyer can choose one?
Lets consider an arbitrage free and complete Model.Let also focus the analysis on the discrete time setting.Assume you have a finite set of random Cashflows $\mathcal{A}$. That means all elements of ...
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1answer
103 views
What is delta of an option signaling?
In an interview I was once asked what the delta of an option was and my answer started from the fact that it is the first derivative of the option with respect to the price, and then I concluded ...
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43 views
Finite difference methods with discontinuity in the payoff function
I have implemented a finite difference scheme for pricing options using a Black-Scholes-like model. I tested my implementation on a call option, and found that it gave extremely inaccurate results. I ...
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43 views
How to price a risk reversal for common dice gain with chance to re-roll
I was just thinking about an extension to the common dice throwing interview expected value question:
Question: Imagine a game where you throw a die and get a payoff equal to the number shown by the ...
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1answer
42 views
Computing VaR in a Monte Carlo simulation (question from Joshi's book)
I am studying Joshi's book on C++ for derivatives pricing. I am at chapter 5 on implementing a statistics gatherers class to use in a (simple) MC routine for pricing vanilla options, where it is ...
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1answer
81 views
Show that a forward starting option has 0 delta, and no sensitivity to volatility until the strike is determined
I need to show that the payoff:
$([(S_{T2}-S_{T1})/S_{T1}]-k)^+$
a. Has 0 delta
b. Has no sensitivity to quadratic variation of the underlying till $T_1$
Additionally, I would like to know for what ...
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1answer
53 views
In which scenario would we end up with more than one $\mathbb{Q}$ after calibrating an incomplete model?
Reading the literature I see that quite an effort is made to price derivatives in an incomplete setting. I see stuff like efficient hedging, indifference pricing, choosing $\mathbb{Q}$ by considering ...
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35 views
Are there any equity derivative instruments offering exposure to borrow rate optionality?
Just what the question says. I understand lots of equity derivatives have secondary exposure to stochastic rates, but I would like to understand if there is a payoff that has borrow rate as one of its ...
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0answers
77 views
Is completeness of a financial model relevant for derivatives pricing?
If a market model is complete then every derivative has a unique arbitrage free price. However we are not starting with a model but with a arbitrage free Model class $\mathcal{M}$ (E.g. the ...
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2answers
279 views
Cash settled contracts price convergence at expiry
I am aware why the price of the underlying security/commodity and its futures contract price would converge at expiration, i.e. if the underlying price was lower than the futures price, an arbitrageur ...
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2answers
54 views
Mini Nikkei Futures Contract - Tick and Point Value
for the Mini Nikkei Futures Contract traded at the Osaka Japanese Exchange, it states that the Tick Value is 500 Yen per Tick. But the actual contract is quoted in 5 Point Increments. Is the correct ...
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1answer
75 views
Using a Swap curve to price Interest rate Swaps
Say we have a 3-m LIBOR IRS (interest rate swap) with quarterly fixed payments (2 year contract), and we want to value this contract (after say 6 months has passed, i.e. there remain 1.5 years to ...
0
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1answer
94 views
How to value a long term interest rate swap if the floating leg is USD-LIBOR
To value an IRS, you require a spot/zero curve. If I am correct this zero curve will be the USD-LIBOR curve. However, if you have e.g. a 10-year swap that you are trying to value 2 months into the ...
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0answers
49 views
Calibrate 1-factor Gaussian HJM model on forward rates and ATM caps prices
I'm trying to solve the following problem as a part of the Interest Rate Models course
The algorithm that I'm following is
derive simple rates from the given forward rates via $L(0, T_i) = \frac{(1+\...
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2answers
92 views
Does someone lose money when I earn money on warrants?
My question is very simple. Does someone lose money when I earn money on warrants? I have tried searching the web but found nothing. I'm guessing the answer is yes. Also this is my first time here. Is ...
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61 views
Shouldn't duration be adjusted?
On August 1 a portfolio manager has a bond portfolio worth $10 million. The duration of the portfolio in October will be 7.1 years. The December Treasury bond futures price is currently 91-12 and the ...
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64 views
Model independent (or reasonable assumption) bounds on OTM put price given an ATM call price
I am looking for model independent (or weak/reasonable assumption) bounds on price of a OTM vanilla put on strike $k1$, conditional on an observable price for a ATM call at some strike $k2$. I ...
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0answers
48 views
How can we argue that the "economic" risk-neutral argument doesn't introduce arbitrage?
I am wondering why when use the "economic" risk neutral argument, we don't introduce arbitrage. By "economic" I mean an argument that doesn't use stochastic calculus or equivalent ...
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1answer
69 views
Data sources on derivative book composition for large investment banks
Is anyone aware of a data source for the composition of the derivative books across asset classes for large investment banks?
As an illustrative example with dummy figures, this could be a database or ...
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0answers
43 views
Is the initial value of the portfolio replicating a forward zero?
This is from the book Financial Calculus: An Introduction to Derivative Pricing by Martin Baxter.
By choosing appropriate weights in a portfolio of a stock and cash bond you can replicate the payoff ...
4
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1answer
124 views
Deriving the Heston-Hull-White PDE
I'm trying to derive the Heston-Hull-White PDE. The correct backwards PDE is equation (1.3) of this paper on page (2). I will begin deriving the forward PDE, but switching between the two is trivial.
...
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28 views
How to calculate net exposure on a Interest Rate Swap (and on derivatives in General)?
I would like to know how to measure Exposure on swaps (IRS, TRS...) in general .
Example, if a party A has a OTC position of 100 million USD in IRS with party B, is party A exposure = 100 million ...
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63 views
Implied cross currency curve
For EM countries without a liquid xccy curve, how I can imply it from local government bonds or swaps?
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1answer
144 views
Barriers on structured notes
I asked a question here:
Structuring and Customization
Thanks to all the contributors. However, I now have a follow-up question.
I would like to buy barrier options and I was informed from that post ...
2
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2answers
280 views
Structuring and Customization
It seems complex derivatives in particular exotic options are not available at any retail broker. Can a regular retail trader get access to these instruments? Maybe through prop firms or banks? ...
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67 views
Pricing of a barrier reverse convertible in python with monte carlo simulation
I'm a finance student and try to do the pricing of a given barrier reverse convertible. This has to be done by a Monte-Carlo-Simulation in Python.
The underlying is a stock of ING Groep N.V.
Strike ...
2
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1answer
90 views
Martingale proof: Call-prices must be increasing in maturity
I have observed that IV is increasing with time to maturity by using market prices and plotting IV (from Black-Scholes) against log-moneyness, $\log(S_t/K)$. $S_t$ being the price of the stock at time ...
2
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1answer
71 views
Show that the price of a LIBOR rate paid in advance is a linear combination of caplets
Let $L(t, T_1, T_2)$ be the forward LIBOR rate at time $t$ for the period $T_1$ to $T_2$.
If a security pays some multiple of $L(T_1, T_1, T_2)$ at time $T_1$, how can we show that the price of this ...
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0answers
24 views
Higher Capital and margin requirement for bilateral Non-central cleared OTC Derivatives
The OTC Derivatives reforms after Global Financial Crisis include higher capital and margin requirement for bilateral traded OTC derivatives?
I have the followings questions:
The higher capital ...
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1answer
27 views
Valuing Conditional "All Or Nothing" Multi Asset Options
I would like some insight as to how to value modified rainbow options on multiple assets:
For example: A multi asset option, Call GOOG with $S_t$ \$1600 that you may exercise if and only if you also ...
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1answer
60 views
Bachelier call option derivative w.r.t strike
I tried to take the partial derivative of the Bachelier call function w.r.t. strike price K (eqn 2.2 here), but my result is not lining up with what is shown on page 43 here.
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1answer
372 views
Risk Neutral Valuation, Drifts and Calibration
Lets consider a pricing model like Vasicek.
Apparently, if you calibrate a derivatives pricing model to market prices this gives you risk neutral parameters. Its not clear to me as to WHY this will ...
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1answer
78 views
FX hedged investments
I was reading FX hedged investments do not have an impact on the FX rate. For example, a Japanese fund buying US treasuries fully FX hedged. I understand the hedging is usually done through short term ...
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2answers
111 views
Hull on Futures: I am not able to understand this sentence
The usual rule chosen by the exchange is to pass the notice of intention to deliver on to the party with the oldest outstanding long position.
...
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0answers
35 views
Futures positioning reported by CFTC
How is the net futures position calculated by the CFTC? For instance, GBPUSD net contract is positive in the CFTC report, what does it mean given that for each buyer there is a seller?
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1answer
38 views
Margin Requirement model for CCP and non-central cleared OTC derivatives
What the models for computing margin requirement for central counterparty (CCP) and non-central cleared OTC derivatives.
0
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1answer
69 views
India's FX foward market
https://www.bloomberg.com/news/articles/2021-05-04/india-asks-state-banks-to-protect-dollar-assets-on-cairn-concern
Based on this article USDINR forward premium has spiked as there is abundant USD ...
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1answer
152 views
How to convert CDX spread to price?
Example: assume the current HY CDX is with 5% coupon. The spread is around 300bps, with a duration of around 4 years.
Would you pls help me to understand why we can proxy the HY CDX price as
100+4*(5%-...
10
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2answers
492 views
Differences between main classes of interest pricing derivatives models
There seems to be 3 main classes of interest rate pricing models: 1) Short rate models, 2) Heath Jarrow models and 3) Libor Market Model. My book doesnt seem to explain why we need all these different ...
1
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1answer
295 views
FX Options price vs implied vol
From the screenshot below, what is the difference between the option price by strike in the table versus the implied volatilities by delta in the chart at the bottom?
https://www.investing.com/...
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2answers
144 views
Currency trades
I usually read statements as the below:
"Bank A recommends long positions in the yuan against the Singapore dollar"
How are these trades usually implemented? Borrow SGD and convert into CNY (...
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0answers
35 views
Commercially redistributable derivative market data source
Is there any derivatives market data source that gives permisson to use this data in a financial model and then sell a product with it? (derivatives valuation for example)
I'm looking for a cheap ...
2
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0answers
64 views
Are there any studies on the link between energy markets and hedging-strategies for Cryptocurrency mining?
Full Disclaimer: I first asked this question on Bitcoin.SE, however I feel like my question is more relevant to this site as there would be wider knowledge and insight of some better sources or ...
4
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1answer
127 views
How does the underlying get delivered for electricity market derivatives?
I have been reading around energy markets recently and recent schemes such as Voluntary Carbon Markets, similar to the 'cap and trade' style of the Kyoto Agreement in 1997.
I have been reading in ...
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1answer
140 views
What is the Radon-Nikodym derivative in the Heston model?
It is clear to me that $$ \frac{dQ}{dP} = e^{-\lambda W_T-\frac{\lambda^2}{2}T}$$ is the Radon-Nikodym derivative that defines the change of measure in the framework described by Black and Sholes. But ...
6
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2answers
799 views
Relationship between Vega and Gamma in Black-Scholes model
my question is the following one: I don't manage to prove that, in Black-Scholes model, single-signed Gamma options have values that are monotonic in the volatility. I am looking for an exhaustive and ...
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37 views
Is the market price of risk deterministic or stochastic in the Heston model?
I am recently digging into the Heston model and I have noticed that every author refers to the market price of risk simply as $\lambda$, or sometimes it is more clearly specified to be bi-dimensional ...
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2answers
153 views
Use of CNY and CNH derivatives
I was wondering what are the reasons why investors use USDCNH forwards vs NDF on USDCNY? Do you usually pick CNH for trade reasons, while CNY more for speculation as these are USD settled?