All Questions
78 questions
0
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22
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Resources to learn derivates [duplicate]
Actually I do follow investopedia but any other tried and tested resources would be helpful.
- 1
1
vote
1
answer
520
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Market Making in practice
I read some of the papers in the market making literature such as: Avellaneda - Stoikov market making model but was wondering if these types of models are actually use in pratice?
It seems that when ...
1
vote
0
answers
83
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Autocall Selling Process [closed]
I'm new in structured products and I need some help for understanding some stuff on autocall.
When a client gives his money to the bank for investing in an Autocall, this money goes in a ZCB and in ...
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3
votes
0
answers
216
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Option-like behaviour of momentum strategy
this may come as rather vague question, since I do not have something very exact issue on my mind. Nevertheless, I think this is an interesting question and must have been thought by some other people ...
- 94
1
vote
1
answer
164
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If there was a way to back out implied volatility (IV) from a stock, would it be the same as the IV backed out from an option on that same stock?
I know that it is not possible to back out an IV for a stock, because the concept of IV is based on a model with underlying assumptions applied to pricing an option.
I was thinking of why IV is ...
- 2,231
0
votes
1
answer
577
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difference between strike notional and spot notional
Can someone please explain the difference between strike and spot notional? in the context of equity options trading?
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2
votes
1
answer
243
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Confusion with the equity option skew
In general out of the money (OTM) equity options have higher implied volatility (IV) than at the money (ATM) options. So assuming we have two put options (5% OTM and 10% OTM). Skew reveals that 10% ...
- 179
0
votes
0
answers
284
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What is the probability of touching point A first?
The probability of a stock touching a point A which is below the current spot price is 35%, and the probability of the stock touching a point B which is above the current spot price is 20%.
How can I ...
user59094
0
votes
1
answer
71
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Computing the denominator of diluted earnings per share
I'm practicing for CFA level 1, and I faced this question. I don't understand the last part (802 − 481 = 321) because I understand that a company doesn't realize options of its own shares, if you are ...
- 103
1
vote
0
answers
4k
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What does it mean to be long the skew?
Consider an equity option such as SPY and I'm long the skew, do I make money if puts raise in price and calls decrease or the opposite?
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0
votes
1
answer
114
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What happens when you buy call options on a stock that does a stock split
suppose i say lyft in 2023 will be worth more then 50 per share (the current call price for the option). suppose im right and each share is worth 75, but in the interim lyft announces a 2-1 stock ...
2
votes
1
answer
93
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Why do Futures Contracts use variation in the US, but options don’t?
Sorry if this is obvious, but I was reading up on Futures and the concept of variation margin intrigued me. Options settle like Stocks and have unrealized gain/loss without affect on cash flow during ...
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-3
votes
1
answer
79
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How do we analyse the future and option market on the base of the Fama-French model?
How do we analyse the future and option market on the base of the Fama-French model?
Basically i want to know can we analyse derivative market on base of FAMA French or CAPM model ?
e.g for stock we ...
-1
votes
1
answer
87
views
Will an options contract always be worth more than it's intrinsic value ? Also if it's very expensive, will it be hard to sell? [closed]
So I'm wanting to know if my call option will be worth more than its intrinsic value and also if lets say it ends up being worth 20k will people be buying it on the market ?
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-3
votes
1
answer
55
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Why did Nifty50 close at 15557 when it was at 15582 at 3:30 pm IST? [closed]
I am a student and trader. I was recently interested in f&o trading recently, so I decided to enter with a hedge strategy. I saw the market go in my favour as the clock reached 3:30 and Nifty was ...
0
votes
1
answer
640
views
Barrier Reverse Convertible
I am a finance student and during my free time I try to understand more financial products.
Today I have found a term sheet for a specific type of barrier reverse convertible but I couldn't understand ...
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2
votes
1
answer
124
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Single period risk-neutral probability derivation
Let $S_u$ be the price of stock in the up-state one period from now. Let $S_d$ be the price of the stock in the down state.
Let $C_u$ be the payoff of a call option at time $1$ in the up-state and ...
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2
votes
0
answers
297
views
spinoff entity value / adjusted close of a spinoff
When company $A$ spins off company $B$ (i.e. $A = A'+B$), how do we know exactly the adjustment factor of $A'$ and $B$ before trading
Note I am not asking to value the new companies. That's a whole ...
- 817
1
vote
1
answer
170
views
Why does an autocall on a linear payoff have vega?
Consider a (stochastic) linear index, say $I(t)$, in that it grows at the risk free rate (with some volatility of course). There exists a maturity date $T$ on which I receive $I(T)$; however there is ...
- 2,561
0
votes
1
answer
104
views
How does clearing and settlement work in Europe?
I understand the basic trade lifecycle but I can't find more information on how clearing and settlement works. To my knowledge, if I buy VOD LN executed on LSE - this will be cleared by LCH which is ...
1
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3
answers
102
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What is the benefit of buying stock options vs. purchasing stock? [closed]
I am aware that this is a simple question; but, given the scenario below, I have not found a satisfying answer while searching this site or Google.
My understanding
Stock options have been described ...
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0
votes
1
answer
812
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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, ...
2
votes
3
answers
10k
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Why multiply stock returns with $\sqrt{252}$?
When converting daily volatilities to annual volatilities one need to multiply with $\sqrt{252}$.
But I found this piece of code this piece of code who calculate log-returns in the following way: In ...
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0
votes
0
answers
140
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Valuing Long-Term (5+ year) Cliquet Options
I'm trying to figure out how to value long term equity cliquet options with expirations 5+ years out. Even for SPX cliquets, vol surfaces are from what I can tell non-existent. Where would someone get ...
- 111
1
vote
0
answers
100
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Attributing hedging p&l to several options
Given a delta-neutral portfolio of one underlying stock and several options,
I'm trying to attribute stock trading p&l to the options
(assuming the underlying is traded only for hedging purposes)....
- 111
1
vote
2
answers
201
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Practical approach to get average option IV
Is there a practical method to calculate some sort of average IV for each level of moneyness of equity options?
I'm thinking of an algorithm to find mispriced options and do to so, we need to figure ...
- 296
1
vote
1
answer
126
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Adjusting your delta hedge when the stock crashes and were originally delta hedged
You are long a call option on a stock and you are delta hedged. The stock crashes in price. How do you adjust your delta, do you buy or sell stock?
Could answers please be quantitative (i am getting ...
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2
votes
0
answers
51
views
Where could I get European non-dividend option data
I am pretty new to option pricing. I got a task asking me to price a stock option, which should be an European non-dividend option, and compare my price to its quote. I used to use TSLA data ...
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0
votes
0
answers
217
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0 Delta on Forward starting Equity basket option
I wanted to confirm the inherent reasoning behind 0 delta on a weighted equity basket option. For instance, if we have a basket option with a forward starting initial fixing date, we can expect the ...
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5
votes
2
answers
7k
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Best topics to begin Quantitative Finance Research/Programming
I have a background in mathematics (Functional Analysis and Probability Theory) and am looking to acquaint myself with research in quantitative finance, particularly with a programming component.
...
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1
vote
0
answers
153
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Credit spread model
Let $c(t,T):=-\frac{1}{T-t}[\mathrm{ln}(P_1(t,T))-\mathrm{ln}(P_0(t,T))]$, with:
$c$ measure of how a company is prone to fail;
$P_0(t,T):=e^{-r(T-t)}$ price of no-defaultable bond.
$P_1(t,T):=\...
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-1
votes
1
answer
184
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Equity Derivatives Question [closed]
I'm preparing to take a test on equity derivatives and have met with some difficulty, so I need some help on the following question:
Please analyze the following share purchase plan. Assume client is ...
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2
votes
1
answer
189
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Simulating assets of different currencies
I have a situation as follows:
One year call option on a Euro stock with a Euro denominated strike.
Knock in feature as follows -
The option can only pay out if the growth in the Euro stock over ...
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0
votes
1
answer
297
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 ...
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2
votes
1
answer
106
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Gordon's dividend valuation model: Ignoring optionality
Currently studying some papers on Behavioral Finance (the dividend puzzle), which employ some basic valuation models, calculating stock's fundamental value $P_t$. The most known is the discount of ...
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0
votes
2
answers
455
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P&L Calculation of Option Strategy
I have designed a call writing option strategy, where I am rolling the options upon expiry, i.e., my portfolio consists of one short call position at any given time.
I have a time series of the value ...
- 450
4
votes
2
answers
3k
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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 ...
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2
votes
1
answer
203
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Equity repo close to money market rates?
I've noticed that the repo rate (here I mean the effective financing rate of the forward position in stock) implied from synthetic forwards is almost the same as money market benchmark (XXXibor 3M) ...
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3
votes
0
answers
134
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American CRR implied vols
Given I have all other parameters lined up with the market (borrow rate, dividends...), if I imply volatility using CRR tree from american call and put with the same strike and expiry, will I always ...
- 31
2
votes
0
answers
382
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VIX/SPX Realized Beta Calculation
In https://globalmarkets.bnpparibas.com/r/Volatility_Express_20171128.pdf?t=BG3REXwMP3NZJRN7wY5Vt&stream=true, it states that
3M VIX/SPX realized Beta calculation:
Use a blend of 1st, 2nd and 3 ...
- 2,662
1
vote
0
answers
303
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SPX/VIX Implied Beta Calculation
In https://globalmarkets.bnpparibas.com/r/Volatility_Express_20171128.pdf?t=BG3REXwMP3NZJRN7wY5Vt&stream=true, it states that
3M VIX/SPX implied Beta = (VIX 3M IVOL*VIX 3M futures)/SPX 3M IVOL
...
- 2,662
4
votes
1
answer
877
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Put pricing embedded in autocall
When pricing an autocall, there are 3 parts:
Strip of coupon,
Zero coupon bond,
Put down and in.
Probabilities of a call is given from the trigger level on call dates.
However, let's say my ...
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2
votes
1
answer
360
views
Index implied repo gerater than the stock repo
I've observed that the repo rate implied from options on Euro Stoxx 50 is significantly higher than the repo rate implied from options on individual stocks that are constituents of the index. This is ...
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2
votes
1
answer
151
views
Using return on equity instead of risk free rate when pricing an equity call option
I am currently a second year university student studying business, so excuse my lack of knowledge regarding the subject.
I am currently studying the binomial options pricing model, which involves ...
4
votes
3
answers
2k
views
Black Scholes and high dividend paying stocks
I understood there were 3 alternative methods of dealing with dividends in BS:
1) using a continuous dividend yield as an input; or
2) setting dividends to zero and subtracting the PV of divs from the ...
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1
vote
1
answer
133
views
Role of next month's dividends in forward pricing
I'm using the equations given on this page to price forwards on an equity.
It's a basic equation that discounts dividends.
But my question is: What do we do about dividends that occur after the ...
- 313
1
vote
1
answer
2k
views
Differences between Snowball, KIKO and TRF derivatives?
Can you explain what are some similarities and differences between snowball, KIKO (knock in knock out) and TRF (target redemption forward) derivatives?
Carl Im
2
votes
3
answers
96
views
Option with company earnings as underlying
I need to calculate the fair value of an option, with the underlying being the earnings of a listed company.
I believe the best way to achieve this is to simulate the earnings of the company and I ...
- 199
0
votes
1
answer
351
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How do I modify my basic black scholes model in Excel to price american options?
I've modeled a basic black scholes model in Excel and I have been using it to price European options for backtesting purposes.
This has been working fantastically and I would like to adjust this to ...
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4
votes
2
answers
2k
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Poker and Options Trading
Certain trading firms (i.e. Susquehanna International Group) believe playing poker can help a trader better perform in the market. What is the rationale behind this? How exactly does playing a card ...
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