Questions tagged [derivatives]
A financial contract whose payoff is linked to the evolution of an underlying security.
1
vote
0answers
48 views
How would one go about pricing a FX future?
What model/equations would I require to calculate the price for a foreign exchange future? This is in an attempt to mitigate foreign exchange risk. Also, how could one measure a business's exposure to ...
2
votes
1answer
62 views
what are the underlying transactions for SOFR?
Recently I am reading about SOFR (Secured Overnight Financing Rate), which is projected to replace LIBOR to be the reference for risk-free rate in the market.
But I still don't understand or imagine ...
0
votes
0answers
61 views
Derivative of the Black and Scholes equation [closed]
What is the financial interpretation that the derivative of the Black and Scholes equation is equal to 0?
St n(d1) - Xe^-rt n(d2) = 0
1
vote
0answers
104 views
A crash course in pricing
I need to refresh all the pricing theory.
Is there anything like a crash course with practical and intuitive explanations?
I will provide any further information.
I am a mathematical engineer. I am ...
2
votes
1answer
68 views
relationship between notional amounts of volatility swaps and variance swaps
Taking volatility swap payoff as $$( \sigma_F - \sigma_S ) * volatility~notional $$
and Taking variance swap payoff as $$( \sigma_F^2 - \sigma_S^2 ) * variance~notional $$
I am trying to understand ...
0
votes
0answers
37 views
Equal weight correlation swap payoff derivation
I am aware that the payoff for a equal weighted correlation swap is;
$$
(\rho_K-\rho)*\text{Notional}
$$
where
$$
\rho = \frac{2} {n(n-1)}\sum_{i < j} \rho_{ij}
$$
I am wondering how I can derive ...
1
vote
0answers
50 views
Is there Carry Effect for Cash Settled Bond Future
As we know, physical settle bond future would expose carry effect which would be the deliverable bond coupon and your financing cost (cost of carry as a sum term). This is because it can be replicated ...
0
votes
0answers
14 views
Longstaff Schwartz with future conditional coupons
I've implemented the L-S algorithm for a simple put option. I want to value a more complex derivative which has future conditional coupons which only occur if the option is in the money. How would I ...
2
votes
1answer
153 views
Pricing under risk-neutral probabilities for weird derivatives?
I would really appreciate some help to value a weird derivative that I've found in an assignment:
$$ X=(S_{T_1}-k)^{+} = \max(S_{T_{1}}-k;0) $$
which expires at time $T_{2}$ and uses the price at ...
1
vote
1answer
26 views
Term structure model for exchange-traded STIR futures and their options
As I understand, models such as the SABR extension of the Libor Market Model are the "standard" for interest rate derivative valuation in OTC markets, where options tend to be European and it is ...
0
votes
0answers
36 views
Value of a put > strike?
I dont understand why the value of a put will be greater than the strike. Is this human error? Weatherford had been delisted and the price of the underlying OTC is 0.05 at the moment. Its a 0.50 Put 6/...
1
vote
1answer
67 views
Longstaff Schwartz algorithm
I am new in finance, I have implemented the Longstaff Schwartz algorithm for pricing american otion - one asset (dimension = 1).
My questions :
Does this algorithm still efficient for a high ...
0
votes
1answer
74 views
Calculate forward discount factors and forward reference rate when discount factors are known
I am trying to learn how to value interest rate swap through portfolio of FRA's(forward rate agreement).But I have got stuck in calculation of floating leg.
Here is the scenario as given below for ...
1
vote
2answers
77 views
Volatility smile shows individual Put and Call IV or combination
IV is calculated per strike AND option type basis(for example WTI 50 CALL its x and WTI 50 PUT its y). The question is when its shown in "Smile" its just shown on strike basis, so does that mean lower ...
1
vote
1answer
59 views
Is it possible to create an instrument on the amount of beds sold within the real-estate market
I have been doing some research on the PBSA (purpose-built student accommodation) market around the globe. The market is growing year on year there is an index on this market the cbre.
What ...
2
votes
1answer
83 views
Derivatives Trading Jargon
Could you please help to understand trading jargon in this tweet.
Thanks in advance.
For non twitter users: Bookie pushing 5-delta (strike of 8) 2 month TRY puts. 0.6%
-1
votes
2answers
237 views
Detect trend of an index
My question is about determining the trend and it can break down to 3 parts.
To clarify, a trend in my point of view, and in simple form, is the last close at time t relative to its time reference, i....
5
votes
1answer
84 views
What is the purest way to get exposure to Jump risk premia, is there a jump swap
So to get exposure to Variance risk premia one could use variance swaps, is there a equivalent security for jumps. Hedging against jump but not diffusion risk could allow one to take targeted exposure ...
3
votes
0answers
58 views
Two barrier options puzzle
I come across an interesting question about barrier option as shown below.
Two barrier options are given with the same parameters including the barrier level. The first one is knocked out when it ...
1
vote
1answer
44 views
Should one calculate CVA even when exposure is negative?
I have an example, where two companies have the bilateral nature of derivative contract. Companies have exchanged collateral a number of times, so at a certain point in time each sides holds some ...
3
votes
0answers
47 views
How to Compute the payoff of Var Swaps, which I have replicated
I used Derman(1999) method, to calculate the fixed Kvar for Variance Swaps using actual option price data. The first Pic Shows the outcome. (ignore the 0s).
Now the profit and loss of short var swaps ...
8
votes
1answer
217 views
Derivation of VIX Formula
I've read a lot of derivations about VIX formula. I can say it is -adjusted- fair strike of variance swap. But I can't see how it goes from variance swap rate to VIX formula. In particular I can't see ...
3
votes
2answers
60 views
Cash vs Deposit Rates
When constructing a yield curve for derivatives purposes, what is the difference between cash and deposits rates?
7
votes
1answer
347 views
CMS Pricing - Convexity Adjustment by Replication [closed]
I'm trying to learn CMS pricing, but didn't get the logic of this method. Previously cited articles about this method is pretty complex.
I'd be glad if you can provide me with simpler articles or ...
1
vote
0answers
73 views
Derivative of the stock price and volume at time t
According to Forecasting of Jump Arrivals in Stock Prices: New Attention-based Network Architecture using Limit Order Book Data at page 9, I would be interested in deriving the the price (ask and bid ...
1
vote
0answers
71 views
pricing of futures
When pricing futures with the cost of carry model; When do you use continuous compounding and when do you just use simple compounding? AND WHY?
Also, when deriving proof of no arbitrage with the cost ...
1
vote
0answers
43 views
FX Average Forward Pricing
Lookin for documentation on how to price FX Arithmetic Average Rate Forwards.
Couldn't find any info on textbooks.
Any help is very appreciated.
1
vote
3answers
329 views
Commodity Asian Swaps
I'm trying to find info about asian swaps on oil/energy products and about their pricing methods.
However, all I could find are on asian options.
Would be glad if you can provide me with some ...
2
votes
2answers
64 views
Arbitrage-free calculation of flat term structure out of normal term structure for e.g. pricing european options
since e.g. the Black-Scholes model requires a constant interest rate (flat term structure) but the real world often has normal term structure, I was wondering if it is mathematically correct to
...
0
votes
1answer
181 views
how to derive the cost of carry formula
Can anyone explain why the cost of carry formula looks like this:
$$F_0 = S_0 \cdot e^{(c-y)T}$$
,where $S_0$ equals the spot price when $T=0$, i.e. today. $c$ denotes the cost of carry and $y$ the ...
3
votes
2answers
222 views
How is volatility different from variance?
I always thought volatility was just variance ^ (1/2). Now I'm reading this book and it's saying that the two are different concepts. Excerpts include:
Partly due to its use in Black-Scholes, ...
1
vote
0answers
68 views
Monte Carlo VAR with differente asset classes
I have found a very useful post regarding the use of Monte Carlo simulaton to obtain portfolio Value at risk, based on Cholesky decomposition, random variates, etc. This post I'm talking about is: Is ...
4
votes
1answer
82 views
Discounted asset price is martingale in BS model
I want to verify that the discounted stock price process $\mathrm{e}^{-r(T-t)}V(S_t,t)$ is a martingale in the BS-model. Using Ito's formula and the BS-PDE I get that
$$
\mathrm{d}\mathrm{e}^{-r(T-t)}...
0
votes
1answer
86 views
Why can derivatives be viewed as a portfolio of the underlying and the riskless asset?
I am struggling with the statement:
"Every derivative of the underlying can be viewed as a portfolio of the underlying asset and the riskless asset."
Is this based on the put-call parity?
Also I ...
2
votes
1answer
51 views
Variance Swap : dividends and rates
In a simplified world you can assume that the var swap is replicated by a continuous set of calls and puts and interest rates are equal to zero. So your PNL is only sensitive to the volatility.
But in ...
3
votes
1answer
65 views
Determining cost of carry for a future in Euronext.com [closed]
A snapshot from the trading book of the CAC 40 futures, on November 5 2018, is:
Using the book prices, how can I compute the cost of carry implicit in the November and December contracts?
Please ...
0
votes
1answer
112 views
How is the performance measure computed here?
The image is from John C Hull Textbook titled Options, Futures and Other Derivatives ( page 407 - Ninth Edition). The table above was obtained after computing the delta of stock price, shares ...
0
votes
2answers
267 views
Proof Black Scholes Theta
I saw the following proof of theta in a paper I read, and I thought it looked pretty neat. Unfortunately I don't understand the step that they do.
This is what they do:
Now, I don't get how they go ...
1
vote
1answer
64 views
Static hedge forward swap using zero coupon swaps
I'm trying to create a static hedge for a forward swap using two spot starting zero coupon swaps (to prove that there is no convexity adjustment needed). Here are the instruments -
Paying fixed in ...
2
votes
1answer
127 views
How are Interest Rate Swaps Quoted
Im not sure if this is the right place to ask this question or whether Personal Finance & Money would be a better place. Basically I know that initially interest rate swaps are quoted based on the ...
1
vote
0answers
358 views
Cash-or-nothing and Asset-or-nothing price derivation
I was wondering how to derive the price of a cash-or-nothing and asset-or-nothing option by trying to work out the expectation under the risk-neutral measure, while assuming that the underlying ...
0
votes
2answers
62 views
Why can a deterministic portfolio only grow at risk free rate
In black scholes derivation we assume that portfolio grows at risk free rate because the process is deterministic, my question is why is it riskfree rate? If i have information about some event in the ...
0
votes
0answers
35 views
Arbitrage and state price formulation
I must be missing something really obvious due to my temporary obtuseness. Can someone please help me see the obvious? :-P Thank you.
I am just browsing Darrell Duffie's Dynamic Asset Pricing Theory. ...
4
votes
1answer
98 views
The positivity of the market price of risk
Does the market price of risk, be it of stochastic volatility, interest rate or equity return, have to be positive? What is the rationale if it does?
2
votes
0answers
116 views
Exotic derivatives - Replication
I would like to replicate the payoff Max(0, Min(S1, K) - S2) with a combination of the following derivatives:
-> option on S1, strike of our choice
-> option on (S1-S2), strike of our choice
-> A ...
3
votes
1answer
415 views
Quantlib derivative valuation from zero curve
I have newly started with Quantlib-Python for valuing derivatives. In all the examples stated in this bolg or in other places, market quote is inserted and bootstrapping is done via individual rate ...
2
votes
1answer
68 views
Which of the following derivatives are protected from arbitrary corporate action?
Practically speaking, are individual stock futures/options and Index futures/ (options on futures) protected from arbitrary company action? Say, in the extreme, all companies suddenly pays huge ...
3
votes
2answers
541 views
Pricing Corridor Variance Spreads
Recently in the equity derivatives market there have been some trades on what are known as "Corridor Variance Spreads." The large equity derivative dealers and investment banks have been promoting it ...
2
votes
1answer
145 views
uncollateralised otc derivatives and bank funding costs
I've read multiple references that imply that the valuation of OTC derivatives being related to bank funding cost. Given that an uncollateralised OTC derivative needs no funding from the bank's ...
0
votes
1answer
354 views
Is Red Code unique per derivative instrument
Does RED Code (="Markit Reference Entity Database Code") uniquely identify the derivative that has been traded?
Is it possible to get a derivative's ISIN code from RED Code?
