Questions tagged [derivatives]

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

Filter by
Sorted by
Tagged with
1
vote
0answers
61 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
vote
0answers
121 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 ...
1
vote
0answers
56 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
vote
1answer
64 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 ...
1
vote
0answers
94 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
82 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
84 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
0answers
137 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
vote
0answers
135 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 ...
1
vote
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 ...
1
vote
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
vote
0answers
61 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 ...
1
vote
0answers
47 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 ...
1
vote
0answers
184 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 ...
1
vote
0answers
515 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 ...
1
vote
0answers
51 views

References on Pricing commodity forwards

Any good reference on pricing simple forward contracts with source code? Thanks
1
vote
0answers
91 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 ...
1
vote
0answers
82 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
vote
0answers
154 views

Volatility Skew for Put and Call options [closed]

Given that the implied volatility follows volatility skew, which one has higher implied volatility? At-the-money put 40 (spot = strike = 40) or at-the-money call 160 (spot = strike = 160)? I am not ...
1
vote
1answer
94 views

Stock price is a martingale if the riskless interest rate is zero?

I came across a question as such: Suppose company IBC is trading at \$75 per share. What does it cost to construct a derivative security that pays exactly one dollar when IBC hits $100 for the ...
1
vote
0answers
169 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
vote
1answer
746 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
votes
3answers
266 views

Is EONIA swap rate really credit risk free?

I have a question linked to the EURIBOR – EONIA spread (or OIS LIBOR spread). I understand that the EURIBOR - EONIA spread is a credit risk indicator of the interbank market. There is something I ...
0
votes
3answers
253 views

Why is it enough to know the expected present value of cash flow in risk-neutral framework to price derivatives?

Wilmott book states that its enough to know the expected present value of all cash flow in risk-neutral framework to price derivatives. As I know, to obtain arbitrage-free market we need our ...
0
votes
2answers
68 views

Option on a dice game with three dices and min. value

We have a call option on 3 dices with strike 3. What's the fair value of the call when it pays the min value of the 3 dices? E.g if we throw and have 426, the min is 2 here and so call is OTM (S < ...
0
votes
2answers
170 views

Hull-White Calibration /Hypothetical Cap Pricing

I have a question regarding calibrating Hull-White (Extended Vasicek) Model to bond data. As you know, and stated in Mercurio (2005), zero coupon bond price in the Hull and White (1994); $P(t,T)=A(t,...
0
votes
1answer
135 views

Relation between ATM, RR and BF

In FX derivative market, why does vol spread of ATM > RR > BF? ATM is the most liquid and intuitively it should have the lowest spread. Please help me in understanding the rational behind the above ...
0
votes
2answers
1k 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 ...
0
votes
1answer
151 views

IVF and implied distribution of underlying in John Hull's book

There is a statement in John Hull's book Options, Futures and Other Derivatives 9th page 633 for the relation between ...
0
votes
1answer
3k views

Why does increased stock borrow costs decrease a stock's forward price?

The author in this article -- http://streetwiseprofessor.com/?p=7294 -- states that an increase in stock borrowing costs decreases a stock's forward price: In the absence of manipulation, the ...
0
votes
1answer
30 views

Synthetic FRAs using Eurodollar futures

In order to create a synthetic FRA position of 30-day FRA on 90-day LIBOR, the diagram below shows that we can enter into positions by going long a 120-day Eurodollar contract and short a 30-day ...
0
votes
1answer
45 views

What is the difference between exercise and expiry date?

I know in American options you can exercise the options at any time before expiry date but in European options you can only exercise the options on expiry day. On National Stock Exchange of India the ...
0
votes
1answer
92 views

Finding todays price of a derivative

Today's market prices for European call options $c(T;K)$ and put options $p(T;K)$ with maturity T and any strike K. Let $B_t = e^{rt}$ be the price of the risk-free bond and St the price of the stock. ...
0
votes
2answers
92 views

Why would a buyer buy a Warrant vs an Option, both having the same economics

Assume you have a Warrant and an Option both with the same economics i.e strike, expiry, type etc. Also assume that the Warrant has been issued by a high grade reputed issuer (i.e there is a almost a ...
0
votes
1answer
67 views

If short rates $r(t)$ do not determine the bond prices $P(t, T)$, then what is the basis for short rate models?

The question title says it all: We know that in general, specifying the short rate $r(t)$ does not specify the bond prices $P(t, T)$. So how can a model for short rates—for example the Vasicek model—...
0
votes
1answer
165 views

Black 1976 caplet value

I've seen from two sources different formulas for the caplet value (Black 1976): $$Caplet_1 = N\cdot DiscountFactor_{0,k}\cdot yrFrcn_{k,k+1}\cdot [F_{k,k+1}\cdot N(d_1) - R_k\cdot N(d_2)]$$ $$ ...
0
votes
1answer
868 views

How to use USD OIS discounting for local currency uncollateralised swaps?

I am wanting to do MTM valuations of uncollateralised swaps as our banks have switched to using the USD OIS curve for their discounting (assuming no xVA adjustments). None of the cashflows we are ...
0
votes
1answer
264 views

How do I value uncollaterised swaps?

Do I need to discount using the OIS curve? Then add some sort of FVA adjustment over and above the CVA/DVA? How do I work out a banks cost of funding? Any help would be greatly appreciated. ...
0
votes
1answer
93 views

Is there a way of synthetically deleveraging a Real Estate portfolio?

If I manage a Real Estate portfolio with approximately 400 million in debt, which is roughly 50% Loan-to-Value (the properties are worth about 800 million). Is it possible to synthesize a bond ...
0
votes
1answer
94 views

How to synthesize this derivative security using plain vanilla call options?

A derivative security pays a cash amount c if the spot price of the underlying asset at maturity is between K1 and K2, where 0< K1 < K2 and expires worthless otherwise. Q: how to construct ...
0
votes
1answer
145 views

Derivatives (Forex Forward) [closed]

Good day, Please, consult me about Forex Forward Swap (Ex. pair USD/RUB). I am trying to calculate and cant understand, how it works. For example: I have: USD/RUB Fwd points 3M - 19650/19950 IR - 10....
0
votes
1answer
103 views

Does presence of arbitrage necessarily make all derivatives have zero value?

Spin-off from: Pricing when arbitrage is possible through Negative Probabilities or something else I mean in a theoretical sense: If we have a particular market model with some fancy assumptions such ...
0
votes
1answer
60 views

Extensive list of financial derivatives and what method is used to value them

What I'm imagining is a long list of different types of financial instruments traded on the market along with the model(s) that is industry standard for valuing it. Something like: European equity ...
0
votes
1answer
42 views

Equal prices for call and put options with symmetric strikes around contemporaneous price?

Shouldn't (according to the Black-Scholes model) the price of a call option with a strike of an arbitrary amount away from the current asset's price, be equal to the price of a put option with the ...
0
votes
1answer
82 views

Calculate Third Order Greeks Options

Hope you're doing great! I'm struggling to develop the code for the Third Order Greeks. In all places I have searched, the development is missing. For example: But I don't know how to develop it, ...
0
votes
1answer
176 views

Python Quantlib : How to value the Non Deliverable currency Interest Rate Swaps?

I followed all the procedure in Quantlib to process interest rate swap valuation through Python Quantlib. I valued more than a million records. All the valuation is almost the expected amount. But '...
0
votes
1answer
68 views

Can someone explain to me the intuition behind the discount factor for this simple payoff? [closed]

Let's say you enter into a contract today in which in time t, you receive the difference between the underlying stock price and 100. Denote the stock price as S. Why is today's value of such a ...
0
votes
1answer
41 views

Where can I find the formulas to compute the Greeks for European Call and Put Options Assuming no annual dividend yield?

Every formula I come across involves a $q$ (the annual dividend yield). Where Can I find the formulas to compute the greeks assuming no dividends?
0
votes
1answer
76 views

Swap Pricing - Using forward rates vs using par bond after first floating payment

There seems to be two different methods I have come across for valuing a Interest Rate Swap - specifically the floating leg. One method described by Hull: incorporates the cashflow from the first ...
0
votes
1answer
533 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 ...

1
3 4 5
6
7