Questions tagged [exotics]
The exotics tag has no usage guidance.
144
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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]...
- 3
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28
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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 ...
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2
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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 <...
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46
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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 ...
- 290
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48
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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 ...
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0
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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 ...
- 141
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159
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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 ...
- 31
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2
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315
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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?...
- 187
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101
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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 ...
- 187
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642
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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 ...
-2
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1
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86
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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: ...
- 1
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220
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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 ...
- 113
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94
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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 ...
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189
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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:
...
- 744
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141
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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 ...
user34971
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105
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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 ...
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137
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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 ...
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1
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117
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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$. ...
- 113
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289
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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 ...
- 33
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2
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289
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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 ...
user59094
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67
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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 ...
- 113
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72
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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 ...
user59094
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131
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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 ...
- 1
3
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2
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433
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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? ...
user57027
3
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2
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302
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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,
\...
- 456
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135
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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 ...
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1
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95
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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 ...
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60
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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 ...
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325
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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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240
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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 ...
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154
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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:
$...
- 103
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67
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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 ...
- 609
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94
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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 ...
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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=(...
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votes
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answer
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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 ...
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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 ...
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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 ...
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2
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307
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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 ...
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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 ...
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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 ...
user34971
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708
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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 ...
- 111
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465
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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 ...
- 433
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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 ...
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2
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1
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97
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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 ...
- 479
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54
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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 ...
- 479
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3
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510
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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 ...
- 2,422
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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 ...
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1
answer
151
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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?
- 23
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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 ...
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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 ...
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