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Questions tagged [european-options]

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11
votes
2answers
3k views

Carr-Madan Formula

Really new to financial Maths. I am currently having problems with the Carr-Madan Formula. $$f(S_T)=f(F_t) + f'(F_t) (S_T - F_t) + \int_0^{F_t} f''(K) (K-S_T)^+ \ d K + \int_{F_t}^{\infty} f''(K)...
9
votes
1answer
3k views

Arbitrage opportunity interview question

I have seen this interview question mentioned in a couple of places: There are three call options on the market, with the same expiry and with strikes 10, 20, and 30. Suppose the call option with ...
2
votes
4answers
2k views

Prove that the butterfly condition is always greater than zero

I need to prove that the butterfly condition is always positive under no arbitrage theorem. We are constructing a long butterfly using European call options ...
1
vote
1answer
153 views

Upper bound option price in volatility dimension

All, I have a theoretical question about the value of an option when spot price goes to infinity as a function of volatility going to infinity. I know that for a call option: The option value ...
1
vote
2answers
93 views

Calculating implied volatility from moneyness/volatility values for date

For an option expiring at a particular date I have Moneyness 0.4,0.7,0.85,0.95,1,1.05,1.15,1.3,2.5 Vol 0.105,0.075,0.045,0.045,0.202,0.045,0.045,0.075,0.085 ...
0
votes
1answer
62 views

Why does a higher stock value imply a higher call option value [closed]

This may seem like a very dumb question, but if the underlying stock price is greater, then why should a call option be worth more. My reasoning is that, if the option price is not affected by the ...