Questions tagged [exotics]

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Hedge up-knock-in forward option

I wolud like to know if there is an analytic formula to to valuate a up-knock-in forward, it means \begin{equation*} (S_{H_B}-S_T)1_{[H_B\leq T]} \end{equation*} where $H_B=\inf[t\geq0 | S_t=B]...
Don P.'s user avatar
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Hedge for some exotic options

It is well known that a european call option with strike price $C(K)=(S_T-k)^+$ coul be hedge using the Black-Scholes formula $BS(t,T,r,K,S_0)$. I would like to find a hedge (or sub-hedge) of the the ...
Don P.'s user avatar
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1 vote
2 answers
122 views

Is this payoff an exotic option or a standard european?

The writer is selling a european call option with $K=S_{0}$, $S=S_{0}$ ($payoff_{T} = (S_{T} -k)_{+}$), time to maturity $T$, with a twist: With some probability, $Pr(l) \geq 0,$ $\forall t,$ $0 <...
TheOneTwoThreeForPumpkin's user avatar
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46 views

Option Payoff in Different Currencies

In the stackexchange answer Change of numeraire in options with currency exchange features Pratically speaking, what this expresses is that these two things are the same: Converting the payoff (which ...
Julie Taylor's user avatar
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Pricing and Risk Management of Exotic Options with a Volatility Surface [duplicate]

Bit of a newbie question; but I see this pop up from time to time. If we have a volatility surface (e.g. for the S&P500) built from market options what more can we do with it, but price other ...
Sinbad The Sailor's user avatar
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55 views

How to properly weight fair value, theta, and cega in a multi asset model?

I'm working with a multi-asset worst of model and the outputs are FV,d1,d2,g1,g2,v1,v2,cega, theta. Its easy to assign proper delta, gamma, vega to the respective asset1 & asset2, but how would ...
vanilla_skies's user avatar
1 vote
0 answers
159 views

Practical risk management on snowball autocallable portfolios

I am new to exotic options pricing and risk management. The scenario that I encounter is that the market maker sells snowball autocallable products(accumulated coupon) every trading day and has to ...
69hl's user avatar
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2 answers
315 views

Practically, are the prices of 0-strike European calls and stock identical?

By no-arbitrage, the price of a vanilla European call with $K=0$ should be that of the underlying stock (as selling the call is perfectly hedged by buying the stock). However, is this true in practice?...
actinidia's user avatar
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4 votes
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What's the typical markup on quoted exotics, and what drives this premium?

I'm curious about the typical markup on quoted exotic options as well as what drives this premium. You call up an options desk for a quote, and they'll give you a spread that reflects their market on ...
actinidia's user avatar
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3 votes
1 answer
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Vanna vs volga and vega

So the bloomberg article that I'm referring to (Bloomberg. Variations on the Vanna-Volga Adjustment. Travis Fisher. Quantitative Research and Development, FX Team. January 26, Version 1) states that ...
Pearl Trivedi's user avatar
-2 votes
1 answer
86 views

Special Exotic Option Pricing Approach [closed]

I am currently stuck with the following problem: You need to price the following exotic option, where the share price of Stock ABC is the underlying: • Time to maturity: 2 years • Right to exercise: ...
Donte's user avatar
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220 views

How to price american barrier with Local-Stochastic Volatility

I have attended a conference where one speaker mentioned that the market standard to price FX and Equity derivatives is now the Local-Stochastic volatility model. I understand this class of model is a ...
Goo Gle's user avatar
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2 votes
0 answers
94 views

Perpetual Option Paying Chooser Option

A perpetual option solves the ODE $$rSV_S+\frac{1}{2}\sigma^2S^2V_{SS}-rV=0$$ The general solution is $$V(S)=aS+bS^{\gamma}$$ where $\gamma=-\frac{2r}{\sigma^2}<0$. For an American put option with ...
Alex's user avatar
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1 vote
1 answer
189 views

SABR LMM vs no-arbitrage term structure of SABR parameters

There exists a LIBOR Market Model with stochastic volatility for pricing and hedging exotic (e.g. path-dependent) interest rate options with smile. However let us consider the following approach: ...
Hasek's user avatar
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3 votes
0 answers
141 views

Single barrier options in stochastic volatility models

In this note/sketch, I derive among others a closed-form formula for an up and in put (UIP) in stochastic volatility models of the form $$ dS(t) = \sigma(t) S(t) \left[ \rho dW(t) + \sqrt{1-\rho^2} dZ ...
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How does the issuer of a Barrier Reverse Convertible determine the coupon?

I am looking into BRC's, and I keep reading about their relatively high coupon rates which are pre-determined by the issuer. However, I can't seem to find any good resources on HOW they pre-determine ...
whaddaplaya's user avatar
1 vote
0 answers
137 views

Basic Autocall question

I'm pretty new in structured products area and I have some basics questions regarding autocall : Why the autocall has an automatic redemption feature ? I mean an Investor could be interested in ...
Emilio75's user avatar
1 vote
1 answer
117 views

What is the name and payoff of this exotic option (where the holder can lock in a price)?

An exotic option is described as follows: Let $S_t$ be the underlying at $t$. The holder has the option to lock in the current price during the lifetime of the option, which he does for $S_{t}=50$. ...
PaulG's user avatar
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3 votes
1 answer
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Pricing of European options on two underlying assets

Is anybody able to give the solution to the following problem? Suppose we have two assets, each of which follows a GBM process, and where $dW_S$ and $dW_X$ are correlated $(dW_SdW_X=\rho)$. $dS=\mu_s ...
Eastwood94's user avatar
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2 answers
289 views

Requesting for price?

Just for education purpose. Assuming I have some trading ideas that involves the use of OTC derivatives but I may not be able to put them into practice due to regulatory issues and huge minimum ...
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0 answers
67 views

Is there an analogous strikeFromDelta implementation for 1st gen barrier options?

I have a simple replication pricing implementation for 1st gen exotics (digitals, single and double barriers, etc.). In order to effectively test strategies I want to price "like" strikes ...
TCopple's user avatar
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0 answers
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Can I combine the exotics for a payout?

Can I combine a one touch option(barrier lower than current price) and no touch option(barrier higher than current price), so that I get a payout immediately only if the one touch barrier is breached ...
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0 answers
131 views

Exotics - Combination of different payoffs using Black-Scholes

I'm currently struggling with the derivation of a formula to price the following exotic option with Black-Scholes. The option has the maximum payoff of $(S_T-z)$ and $(y - S_T)$, where $S_T$ is the ...
Peet's user avatar
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3 votes
2 answers
433 views

Structuring and Customization

It seems complex derivatives in particular exotic options are not available at any retail broker. Can a regular retail trader get access to these instruments? Maybe through prop firms or banks? ...
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3 votes
2 answers
302 views

Monte Carlo approximation of call option on the maximum of two assets

I want to compute the price of the option with payoff \begin{equation} \max \big\{\max\{S^1_T, S^2_T\} - K, 0\big\}, \end{equation} where $S^{1,2}$ have the same dynamics with 0 correlation. So, \...
R. Rayl's user avatar
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0 answers
135 views

Discrete geometric asian option, analytic vs MC

I am attempting to price a discrete geometric Asian option using both the closed form formula (can be found in section 3.2.2 of 'Monte Carlo methods in Financial Engineering' by Glasserman) and an MC ...
quant_student's user avatar
0 votes
1 answer
95 views

Floating lookback put, MC vs analytic

I am attempting to price a floating lookback put using the analytic formula. (eg. can be found in Shreve's vol II stochastic calculus section 7.4 or on Wikipedia) and wish to confirm the result by ...
quant_student's user avatar
0 votes
1 answer
60 views

Valuing Conditional "All Or Nothing" Multi Asset Options

I would like some insight as to how to value modified rainbow options on multiple assets: For example: A multi asset option, Call GOOG with $S_t$ \$1600 that you may exercise if and only if you also ...
Kareem Sayed's user avatar
0 votes
1 answer
325 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 ...
Rheromaster's user avatar
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0 answers
240 views

Machine/Deep Learning for Exotic Option Pricing - Reference Request

Exotic options, in general, have very time-consuming valuation models. I believe in recent years there has been some research done on using supervised machine/deep learning to predict the valuation ...
Dhruv Mahajan's user avatar
0 votes
1 answer
154 views

Black Scholes price of exotic claim

Given a time horizon N, I want to know the time-$t$ Black-Scholes fair price of $$\int_0^T S_u du$$ where $S_u$ denotes the time-$u$ stock price. I have used the formula I have been given as follows: $...
user3184807's user avatar
1 vote
0 answers
67 views

Option where option writer determines type of option to give to holder

I am currently looking at an exotic option that allows the holder, at some time $\tau$, to receive either a call or put — the choice of which is decided by the option writer — of which both have the ...
user107224's user avatar
1 vote
0 answers
94 views

using moment matching to price spread options (multi asset)

this is my very first question in this forum, after having been a greed follower since a few years, feeling that I need your help in a topic. I need to price a multi asset option that has the ...
TraderBruceWayne's user avatar
3 votes
1 answer
581 views

Pricing an Option with payoff $\left(1-\frac{K}{S_t}\right)^{+}$

Let $S_t=S_0 \exp\left\{rt+0.5\sigma^2t+\sigma W_t\right\}$ be the usual GBM model for a Stock price under the money-market numeraire. Suppose we want to price an option with payoff at maturity: $C_T=(...
Jan Stuller's user avatar
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2 votes
1 answer
1k views

Valuation of Corridor Variance Swaps

Given that the payout of the Corridor Variance Swap (CVS) is $V \left(\frac{\sum_{n=0}^{N}I}{T_2 - T_0} (\sigma^2 - K^2) \right)$, where $\sigma^2$ is the realized variance within the pre-specified ...
AK88's user avatar
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0 votes
1 answer
5k views

What's the difference between a normal Autocall and a Phoenix Autocall?

I understand the structure of the autocall, how they're priced and their contingent coupons. What I'm not completely clear on is the difference between a "vanilla" Autocall and a Phoenix ...
Metrician's user avatar
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0 votes
1 answer
150 views

Undergraduate research topic in options [closed]

I'm an undergraduate student in finance with a pretty solid knowledge of financial mathematics and I'm currently picking a topic for my research paper this year. I have already decided I will pick ...
Nick's user avatar
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2 votes
2 answers
307 views

Autocall pricing: what does "Lipschitz continuous parameterization" mean?

I've been reading through this research paper (A Monte Carlo Pricing Algorithm For Autocallables That Allows for Stable Differentiation by T. Alm, B. Harrach, D. Harrach, M. Keller) about a method for ...
Metrician's user avatar
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1 vote
4 answers
2k views

What book(s) would you recommend for structuring and pricing Exotic Products?

I've been looking for good books on structuring equity derivatives (Principal Protected Notes, Autocalls, Lookbacks, Reverse Convertibles etc). I only found ones that discuss mainly the theoretical ...
Metrician's user avatar
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2 votes
0 answers
103 views

Determination of critical stock price in compound option pricing

Under the Black-Scholes framework, there is a closed form formula for the price of a compound options, as first derived by Geske (1979). However, the analytical formula refers to a critical stock ...
user avatar
9 votes
0 answers
708 views

Autocallable option Delta

There have been numerous exotic trading desk blow ups lately, related to various reasons. However, in particular, one bank had some issues where they were pricing autocallable notes with Local ...
ellie_cat's user avatar
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0 votes
0 answers
465 views

COS method option pricing

is the cos method used to calculate prices of options other than the European call? Or is this method only used for calibration? Is it possible to evaluate the barrier and lookback options? I am ...
Math122's user avatar
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1 vote
0 answers
83 views

Hedge robustness of the one factor Hull White model

I recently came across a quote in a book: "All single factor models share the limitation that shifts in curve levels cause shifts in the package of vanilla options that are a good hedge for the ...
Arshdeep's user avatar
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2 votes
1 answer
97 views

Confusion about optimal choices with exotic options

With exotic options, holders usually face choices at certain times. In my understanding, the price of the option is determined by assuming the optimal choice is taken and computing the discounted ...
Xiaohuolong's user avatar
2 votes
0 answers
54 views

Confusion about American style option

In American style exotic options, the holder is often faced with choices at certain times during the life span of the option. Following the/an optimal choice allows the user to maximize the value of ...
Xiaohuolong's user avatar
1 vote
3 answers
510 views

Graph of a down-and-in barrier option

Here is a graph of Price vs Spot from Joshi's Quant Interviews book, The first line is a down-and-out barrier option and the other one is a down-and-in barrier option. The strike is 100 and the ...
Trajan's user avatar
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1 vote
0 answers
96 views

How to price a down-and-out leveraged barrier call option using Brownian motion?

I am trying to price a type of leveraged down-and-out (LDAO) barrier call option, using geometric Brownian motion. My python script is below. I am not sure how to correctly model the increasing ...
twhale's user avatar
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2 votes
1 answer
151 views

What are the formulas to compute the greeks of a gap option?

I'm having a problem to calculate the gap option greeks since there are 2 different exercise prices K1 and K2. Do you know the answer or where can I read about these particular greeks?
stoimparando's user avatar
2 votes
1 answer
358 views

What kind of entities use exotic derivatives, and do they serve any purpose other than hedging risk?

I work in a sell-side bank in derivatives modeling. My work involves modeling and pricing of exotic derivatives and I often wonder who are the buyers of these products. From my research, I found that ...
qwerty_uiop's user avatar
3 votes
0 answers
215 views

Pricing/Hedging a yield curve spread option (YCS)

I have 2 perspectives as to what model to use for a YCS option: It is an at the expiry option, so hit the marginals, correlate them with a copula, and be done with it. To hedge the vega, I will need ...
Arshdeep's user avatar
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