Questions tagged [exotics]

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Exotic derivatives - Replication

I would like to replicate the payoff Max(0, Min(S1, K) - S2) with a combination of the following derivatives: -> option on S1, strike of our choice -> option on (S1-S2), strike of our choice -> A ...
105 views

Barrier Option with Time-Dependent Rebate

Is there a closed form solution for American Single-Barrier Options (specifically Down-and-Out Calls) which undergo linear principal amortization based on the amount of time passed before being KO'ed? ...
269 views

Pricing of multi strike rainbow options

I am looking at the pricing of a two asset multi strike option in the Black Scholes framework but I am struggling with coming up with a pricing formula. The payoff of the option at maturity is \...
122 views

Does the Knock-out option price go to $0$ when the stock price goes to the barrier $B$?

I am reading Steven Shreve's book "Stochastic Calculus for Finance 2 Continuous-Time Models", page 304. My intuition is that when the stock price gets closer to the barrier, it will be more and more ...
122 views

Can I trade the volume of a security or index?

Is it possible to trade a derivative product priced on the volume traded of some underlying security or index? Does such a derivative exist on any exchange traded markets? Or anywhere?
64 views

Can we use Black-Scholes to price path dependent options?

I know that we can use the Black-Scholes framework to price vanilla products like a European call or put, where the payoff only depends on the share price at maturity. But can we use it to price path ...
374 views

Pricing for an Odd Type of Asset or Nothing Option

Trying to derive the pricing function for a derivative on two assets $S^1$ and $S^2$ with the following payoff function: $$\Phi(S^1_T,S^2_T)=S_T^1 \, \unicode{x1D7D9}\{S_T^2\le K\}$$ where I'm ...
272 views

PDE of barrier and lookback options

In Shreve's book, he obtain the PDE of barrier option by Payment function $$V(T) = (S(T) - K)^+\mathbb{II}_{\{S_{\textrm{max}}(T) > B\}}$$ Then use the risk neutral pricing formula and Markov ...
323 views

Pricing Exotics: Monte-Carlo is too slow?

I want to price exotic options under the exponential VG model and Merton's model to compare both models. To price exotics under Merton's model, I have written the code below. The output is the price ...
977 views

Autocall replication using vanilla options

How to replicate a single asset auto call through call spreads ? Single asset auto call: Definition and pay off profile is clear. Just want to know the method to replicate it through vanilla call ...
70 views

How to hedge x gamma in callable prdc?

How do you hedge the short rates - fx cross gamma in a callable PRDC (Power Reverse Dual Currency note) ?
106 views

Price of the form $v(t,x)=\phi(t,T)x^n$ for a power option

I'm trying to solve the next exercise: Let $g(S_{T})=S_{T}^{n}$ be the pay-off of a power option. Show that it's price is given by $v(t,x)=\phi(t,T)x^{n}.$ Find the function $\phi(t,T)$ using risk-...
43 views

Verify the accuracy of a model for exotic option if there is no enough data of market price every?

How to effectively verify the accuracy of a model(may be complicate) for exotic option, if there is no enough data of market price? Is there any related reference?
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Risk management for Digital Option at large Bank

Say, an investment bank sell Digital Call Option to its client at strike 100. But trader at the bank want to book the deal with a call spread at 99/100 (price&hedge Digital Option like price&...
252 views

Pricing Exotic options

I am stuck at a assignment problem where I have to compute the price of an exotic option. I am given the values the prices of option $C(X;k) = E[max(0,X_T - k)]$ for different strike prices $k$ and ...
161 views

Pricing with Vasicek model on basket of credit spreads

I would appreciate help with a valuation of a fixed income derivative, with an embedded exit option. Summary: Goal is to provide valuation of a fixed schedule of quarterly cash flows with an option ...
294 views

Exotic option pricing

I'm trying to price an option with payoff $\max\{a\cdot S_t - K,0\}$ where $a$ is a known constant. Ideally I'm looking for a closed form, continuous-time solution. Where should I begin?
46 views

Valuing a claim on $S^a$: This exercise/solution appears to have a mistake

The below exercise and solution was found in "Models for Financial Economics" by Abraham Weishaus. My issues are: In this problem, $S(t)$ does not satisfy the Black-Scholes framework because ...
694 views

How to price exotic options using Monte-Carlo?

I am actually trying to solve some exercise problem using Monte-Carlo and C++ for exotic options. Namely, the exotic options are geometric Asian options and discrete barrier option. It is claimed ...
441 views

Finding the delta and gamma with historical data

I have a complicated product with knock-out barriers combined with other exotic options. I am curious if there is a fast and loose way to figure out the delta, gamma, rho, theta and possibly vega, ...
910 views

Put-Call Parity Arbitrage Exploitation for Binary-Asset-or-Nothing Options

Is the Put-Call-Parity valid for binary (asset-or-nothing) options? If not, is there another formula for such exotic options? I know that for regular options, there are arbitrage opportunities when ...
6k views

Can someone explain what “Exotics Trade Capture” capture means in layman's terms?

I am trying to find out what Exotics Trade Capture entails. I can't find anything on Google that isn't a job posting, which is where I saw this term. Say you did this for a living, how would you ...
29 views

How does the implied correlation change when the spot price of the Basket Call/ Put option goes up?

Given a basket Call/Put: $BasketCall_{payoff} = max[0, \Sigma^n_{i=1} w_iS_i(T) - K]$ If the spot price of the basket goes up/down, how would the implied correlation change? I guess what I am not ...
49 views

Multi-legged Swap pricing

can anyone guide me how to price a multi-legged swap and whether I need Monte Carlo / LMM based approach or if there is a closed form solution. Receive leg "Libor 3m +1%" Payment leg If Libor is ...
784 views

R or Matlab code for Multi-Barrier-Options (3 or more underlyings)

I am looking for R or Matlab code examples of multi-barrier-options (or multi-barrier reverse convertibles) with at least 3 underlyings. Do you have such code or can you point me to a place where I ...
52 views

Clarification on the payoff of a portfolio consisting of a long Up&In Put and short Up&In Call

I am trying to make sense of this example: I'm not following the second line in red: "If you buy an up-and-in put and sell an up-and-in call, the payoff is the strike price minus the stock price ...
We know the payment function of Spread option is $$\max\{X_T - Y_T-K,0\}$$ here $$d X_t = (\mu_x - D_x)X_t dt + \sigma_xX_td W^x_t$$ $$d Y_t = (\mu_y - D_y)Y_t dt + \sigma_yY_td W^y_t$$ d W^x_td W^...