Episode #125 of the Stack Overflow podcast is here. We talk Tilde Club and mechanical keyboards. Listen now

# Questions tagged [derivatives]

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

302 questions
Filter by
Sorted by
Tagged with
18k views

### Innovative ways of visualizing financial data

Finance is drowning in a deluge of data. Humans are not very good at comprehending large amounts of data. One way out may be visualization. Traditional ways of visualizing patterns, complexities and ...
7k views

### How to estimate real-world probabilities

In the world of finance, Risk-neutral pricing allow us to estimate the fair value of derivatives using the risk free rate as the expected return of the underlyings. However, the behavior of ...
998 views

9k views

### What is a self-financing and replicating portfolio?

I try to understand the derivation of the Black-Scholes equation based on the "constructing a replicating portfolio". From mathematical point of view it looks simple. We assume that: Stock prices is ...
250 views

### Are there financial instruments that make a bet on traded volume instead of price or its derivatives?

For most financial instruments we can go long or short and make a bet on the price. In the case of options we can bet on derivatives of price and other factors (e.g., interest rates). Is there an ...
327 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 ...
391 views

### How to think about pricing this weather call option

So as opposed to the normal structure using a reference temperature and HDD/CDD, I'm looking at pricing a call option with a structure similar to the following: Daily option on maximum daily ...
266 views

### New ways of communicating risk

One of the scapegoats of the financial crisis was value at risk. Still communicating risks effectively to clients is a big challenge and hugely important (also to keep your job as a quant!) In this ...
3k views

### What is the replicating portfolio of swaptions for a constant maturity swap (CMS)?

How do you replicate the payoff of a constant maturity swap rate? That is, if the payoff of a contract pays the 5-year swap rate every year for 10 years, how would you replicate this payoff using ...
3k views

### Why discounted derivative price is a martingale?

Usually after showing that discounted stock price process is martingale under the risk-neutral measure, most authors say that this implies that the discounted derivative price process is a martingale ...
434 views

### Is it true that pricing an IR swap doesn't require any stochastic model but calculation of the PFE of an IR swap would?

Pricing an IR swap doesn't require any stochastic model but calculation of the PFE for an IR swap would require the Hull White Model or any other stochastic short rate or forward rate model. Is this ...
605 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 ...
2k views