Questions tagged [derivatives]

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

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17
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1answer
845 views

Stochastic modelling of derivatives on dividends

I consider pricing and risk analysis of derivatives on dividends of the members of equity indices (such as Dow Jones EuroStoxx). There are options but I focus on futures. What are common stochastic ...
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1k views

option chain data visualization, sunburst

I think option chains are not represented in the best way. With more and more options products coming out and trading on the various exchanges, I see vendors struggling to keep up with a good way to ...
4
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0answers
79 views

Structured Energy Option Pricing

Let's say I have an option with the following terms. This is for an energy product (ie natural gas) The contract will last for 6 months The payoff is the difference between the first of month index ...
4
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0answers
166 views

Risk factors for derivatives on dividends

I consider pricing and risk analysis of derivatives on dividends of the members of equity indices (such as Dow Jones EuroStoxx). There are options but I focus on futures. What are the main risk ...
3
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0answers
61 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 ...
3
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0answers
51 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 ...
3
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0answers
287 views

OTC derivatives trade life cycle

Can someone please walk through a typical OTC derivative trade life cycle? Or could you please provide a good source on that topic? ( I mean things like negotiation - trade execution - trade capture, ...
2
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0answers
32 views

Difference in utility of cap/floor and FRA

What is the difference in utility for cap/floor and FRA? To me their function looks very similar. Are they used for different objectives. One thing I know in difference is that the pay off for cap is ...
2
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0answers
57 views

Banks' use of written interest rate options

I study US commercial banks data. I look at the notional amounts of their different OTC interest rate derivatives for the recent years. When I look at non-dealer banks (i.e. end-users), I find that ...
2
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0answers
62 views

How to determine expected returns of an options portfolio?

Lets say I have a delta neutral portfolio, iron condors on spy for example. I'm short a call credit spread and a put credit credit spread of equal widths. I would like to determine the expected ...
2
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0answers
135 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 ...
2
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0answers
558 views

Multi-currency CSA discounting curve construction

I have a number of eur/usd and gbp/usd MtM Basis swaps that are collaterized in USD. For the non-usd legs I'm constructing the muti-ccy csa discounting curve. Im using forwards for the short end of ...
2
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0answers
154 views

Derivative and Credit Risk Modelling

I am looking at acquiring a system to help with multi-instrument modelling. Across the spectrum Equity/FI/Swap/Repo/CDS/FxSwap/Forward/Future/etc for vanilla and more complex derivatives. The modeling ...
2
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0answers
64 views

Literature to Learn about Different Instruments

What is a good source of literature to learn about the specifics of various instruments that are traded? For example, suppose I wanted to know more about MBS's, i.e. how exactly they are securitized, ...
2
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0answers
86 views

why many option contract price less than minimum boundary price?

I downloaded data from NSE(National Stock Exchange) website regarding closing price of European Call Option written on Index. From standard textbook, I read that option contract must satisfy $C(t) \...
2
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0answers
304 views

Weighted average implied optionlet/swaptions volatility

Let an implied volatility curve/surface is made up by optionlets or swaptions Black's implied volatility. If you wanted to price, say, a FRN with cap and/or floor, a CMS et cetera you would input the ...
2
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0answers
85 views

FRA-Strategy: Make 3-month and 1-year Excess returns comparable

I am trying to analyze an investment strategy that tries to exploit the empirical difference between forward interest rates and realized spot rates. I am using FRAs to capture the difference. I am ...
1
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0answers
55 views

What is the name of these digital basket options?

Consider a basket of correlated assets $(S_1(t),\ldots, S_N(t))$, as well as a vector of strike prices $(K_1,\ldots,K_N)$, and let's look at the following European payoff types: An option that pays 1€...
1
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0answers
63 views

Bates Model Jump Percentage Parameters

I am trying to calculate the jump parameters for the Bates volatility jumps, specifically, the mean of the jump percentages, $\mu_j$. For the value of $J$, I am using jumps $|\frac{s_{i}-s_{i-1}}{s_{i-...
1
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0answers
52 views

Why does it make sense to be long deep OTM calls on a stock if I expect the share price to jump in the near term?

This may be a simple question to all, however, it is puzzling me for the simple reason that deep OTM calls have very small deltas per the BSM. That is, even if the share price jumps (e.g. IBM moves ...
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0answers
55 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 ...
1
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0answers
111 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 ...
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0answers
51 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 ...
1
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0answers
80 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 ...
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0answers
76 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 ...
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49 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.
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0answers
92 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 ...
1
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0answers
439 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 ...
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0answers
124 views

Martingale approach - Option pricing with Radom-Nikodym

I would like to get the price of an option which pays at time T the minimum between the logarithm of (S(1,T) / S(1,0)) and the logarithm of (S(2,T) / S(2,0), with the following processes: (The two ...
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0answers
62 views

The interpretation of discounted Greeks

I understand that Delta measures the rate of change of the theoretical option value with respect to the change of the underlying asset price. This also represents the number of shares a call option ...
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0answers
60 views

Solving for roots of a stochastic pay-off function

I have a pay-off function for a derivative which is defined by the Heaviside difference between $G$ and $B$ shifted by $-F$. To find the value of $V_{t=0}$, I need to find $\tau$ when $\frac{dV}{dt} = ...
1
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1answer
274 views

Exercise Probabilities Vanilla Cap/Foor

When looking at the discounted pay-off formulas of a vanilla caplet and a vanilla floorlet $\frac{\Delta\tau}{1+r_k\Delta\tau}\max(r_k-r_{cap},0)$ $\frac{\Delta\tau}{1+r_k\Delta\tau}\max(r_{floor}-...
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0answers
50 views

Boundary condition of lookback option

This is a well know conclusion of the boundary condition of lookback option. Here $$\dfrac{d S_t}{S_t} = (\mu - D)dt + \sigma ...
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0answers
40 views

Floor option EVE risk: Sum of key rate shocks risks vs. the rates parallel shock risk

Consider a model measuring the EVE risk (change in the economic value by shocking the rates; PV01) of a portfolio of vanilla interest rate floor options. Is there any reason for the EVE risk of a ...
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0answers
167 views

Valuing cleared cancellable swap

I have a cancellable swap to value, with the float leg payer being a clearing house. The cancellable term sheet states the interest rate swap has a Bermudan style optionality for early termination ...
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0answers
410 views

Funding Valuation Adjustment (FVA) - understanding issues

Having trouble with understanding the logic of FVA. Let's assume that as a trader I trade with a client an uncollateralised fx forward. Then, I hedge my position with "risk-free" bank with which I ...
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0answers
48 views

References on Pricing commodity forwards

Any good reference on pricing simple forward contracts with source code? Thanks
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0answers
86 views

Scaling Stock Price and Strike etc. by a Constant

Please provide steps to justify the below. 1) If the stock prices, strike and other price related parameters are scaled by the same constant, will the derivative price scale accordingly? I would ...
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0answers
76 views

Fair Price CDS Spread for a Bank

I have been using CreditGrades to calculate fair one year CDS spreads for firms. However, the authors of the model explicitly say that the model does not hold for banks or financial firms. If I need ...
1
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0answers
149 views

Understanding Price Elasticities in Discrete Choice Models (Derivative)

I'am in the midst of a paper on mutual fund product differentiation by Li and Qiu. Here, the authors model the utility an investor derives from investing in a mutual fund using a Discrete Choice Model ...
1
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1answer
643 views

Which models do Bloomberg/Reuters use to derive implied volatility for interest rate derivatives with negative forward rates?

can anybody tell me which models Bloomberg and Reuters ares using to derive implied volatility for interest derivatives with negative forward rates? I know that Black-76 is the standard model, and ...
0
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1answer
67 views

What happens to both sides of an inflation swap agreement if there is deflation?

If there is deflation does the Inflation receiver not only pay the fixed leg but also receives a reduced CPI? I.e. does he lose twice?
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0answers
39 views

Solutions for Paul Wilmott Derivatives Book

I am looking for solutions manual for Derivatives, "the theory and practice of financial engineering". I'm not sure if the manual is published ever but I couldn't get it. I would be more than happy ...
0
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0answers
38 views

Possible to have different collateral for each party?

Normally bilateral credit support annexes would have both parties post/receive the same collateral be it US treasuries or cash etc. Are there CSAs Where each party has a different set of eligible ...
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0answers
39 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 ...
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0answers
17 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 ...
0
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0answers
37 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/...
0
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0answers
137 views

Pricing of Swaption by Proxy and Monte Carlo

here's the problem. Suppose you want to compute the price of a Call option on a Swap contract. Let $T$ and $T+S$ the times (in year fraction) where the Swap lives and suppose that the fluxes of the ...
0
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0answers
406 views

What is the intuition behind the equivalent martingale measure result?

"Suppose that f and g are the prices of traded securities dependent on a single source of uncertainty and define phi = f/g. The equivalent martingale measure shows that, when there are no arbitrage ...
-1
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1answer
2k views

Compute I-spread from ASW-spread (or vice versa)

The I-spread ("mid swap spread" or yield-yield spread) is a standlone measure of credit risk, a security against matched maturity vanilla swap rate. Consider a package in which the investor receives ...