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Questions tagged [exotics]

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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 ...
ellie_cat's user avatar
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4 votes
0 answers
106 views

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
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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 ...
user avatar
3 votes
0 answers
294 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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3 votes
0 answers
112 views

How to monetize ability to predict small stock movements smaller than spread?

For a relatively small subset of stock symbols I have been able to build a model that is able to 20-100 times per day consistently predict whether a stock is going up within the next 2 minutes, being ...
Blue Swan's user avatar
3 votes
0 answers
259 views

What models are used for pricing cliquet options (esp. for Asian Equity underliers)? How good is Bergomi model?

What are the most common models, actually used by trading desks for Asian underliers, for pricing cliquet options? I would like to know both - (1) the production model used for daily P&L, and ...
bhutes's user avatar
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3 votes
0 answers
144 views

Rainbow option pricing formula under *Bachelier* model

Let's consider a call on min option on two underlying arithmetic Browniation motions $V_t$ and $H_t$ (no drift). Let $P_t$ denotes the price process of the option, $r$ the riskfree rate, $\tau$ the ...
Vim's user avatar
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2 votes
0 answers
99 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
  • 688
2 votes
0 answers
117 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
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
2 votes
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85 views

Average Strike Option with bounds

I'm looking to price a call option with an exotic feature. The price I'm trying to calculate at time $t=0$ is \begin{equation} C = E^\mathbb{Q}[(S_T-K_T)^+] \end{equation} where $S_t$ is the stock ...
Freelunch's user avatar
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2 votes
0 answers
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Exotic Derivatives Model Calibration

Suppose if we will like to price an exotic option with a model,we calibrate them to natural hedging instruments that are available in the market. Do we use all the instruments as hedge or only a ...
Benedict's user avatar
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2 votes
0 answers
99 views

what is the state of the art method for hedging barrier options?

I want to create my own Barrier options for some security, I want to trade. I did some literature review, and found a static replication method, and many dynamic replication methods. I want to know ...
Irtza Ahmed's user avatar
2 votes
0 answers
69 views

Dimension reduction for worst of basket on $min(S_1, S_2)$

Suppose we want to price an exotic equity which is a function of $min(S_1, S_2)$. To do this, I'm trying to compute an implied volatility surface for $min(S_1, S_2)$ and then price the option using ...
John Doe's user avatar
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2 votes
0 answers
186 views

Bates Model Jump Percentage Parameters

I am trying to calculate the jump parameters for the Bates volatility jumps, specifically, the mean of the jump percentages, $\mu_j$. For the value of $J$, I am using jumps $|\frac{s_{i}-s_{i-1}}{s_{i-...
Kevin K.'s user avatar
  • 111
2 votes
0 answers
2k views

Cash-or-nothing and Asset-or-nothing price derivation

I was wondering how to derive the price of a cash-or-nothing and asset-or-nothing option by trying to work out the expectation under the risk-neutral measure, while assuming that the underlying ...
John's user avatar
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2 votes
0 answers
284 views

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 ...
Skyly83's user avatar
  • 61
2 votes
0 answers
186 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? ...
Andrew's user avatar
  • 21
2 votes
0 answers
421 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 \...
Nik345's user avatar
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2 votes
0 answers
127 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?
quant's user avatar
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1 vote
0 answers
60 views

Shout option payoff replication

I have not seen much talk about exotic options, and if they are actually traded. Is it possible to replicate the payoff of a ‘Shout option’ using standard European/American call and put options?
FawaMop's user avatar
  • 15
1 vote
0 answers
74 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
434 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
  • 31
1 vote
0 answers
197 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
0 answers
71 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
127 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
1 vote
0 answers
93 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
  • 2,431
1 vote
0 answers
111 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
  • 331
1 vote
0 answers
74 views

Proving an Expectation

Assume the risk-free bond $B_t$ and the stock $S_t$ follow the dynamics of the Black & Scholes model without dividends. Consider the perpetual American put option with payoff $(K-S_\tau)^+$ when ...
Math user's user avatar
1 vote
0 answers
305 views

Pricing exchange options

I am really puzzled about the mechanism of pricing of exchange options using a change in numeraire: Suppose that $S^{(1)}$ and $S^{(2)}$ are stocks satisfying SDEs $$dS^{(1)}_t = \mu_1 S^{(1)}_t \,...
Richard's user avatar
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1 vote
0 answers
174 views

Swaption pricing and strategies

I am looking for resources (books, papers, websites, etc.) that deal with Vanilla and Exotic swaptions from a more advanced and quantitative perspective. I am interested in both the pricing side (e.g. ...
Ile's user avatar
  • 311
1 vote
0 answers
179 views

Pricing an exotic with barrier at discrete times

How would you price the following option on underlying $S$ without dividends? Time to maturity of option $\tau = 12$ months Option has a strike $K > 0$ and constant barrier $B > 0$. $t_0$ is ...
Alfi's user avatar
  • 11
1 vote
0 answers
120 views

Boundary condition of lookback option

This is a well know conclusion of the boundary condition of lookback option. Here $$\dfrac{d S_t}{S_t} = (\mu - D)dt + \sigma ...
A.Oreo's user avatar
  • 1,243
1 vote
0 answers
480 views

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&...
Woraphon T's user avatar
1 vote
0 answers
368 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 ...
stochastic_zeitgeist's user avatar
1 vote
0 answers
274 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 ...
Bananaman's user avatar
0 votes
0 answers
32 views

Approximation of an Autocall (trigger 100%) with ATM options prices

thank you very much for trying to answer this question, and I hope it will be helpful to everyone in my situation. I am preparing for an interview, and I've come across these three questions on the ...
Arbitrageously's user avatar
0 votes
0 answers
41 views

Replicating power (electricity) options in US markets

For options on power (e.g. https://www.ice.com/products/6590519/Option-on-ERCOT-North-345KV-Real-Time-Peak-Fixed-Price-Future ), how would you replicate this? Vanilla options in equities can be ...
Sameer Lal's user avatar
0 votes
0 answers
21 views

FX portfolio MV estimation for undelying Spot move

In the context of a project involving FX derivatives, I am faced with the challenge of estimating the change in the market value of my portfolio in response to a change in the underlying spot. The ...
AIEA's user avatar
  • 21
0 votes
0 answers
97 views

Cross corridor var swap

How should I think about replicating a cross corridor variance swap like breaking into strips of calls and puts and an over hedge that I can rebalance at some frequency? Given the earnings move, I can ...
exotics101's user avatar
0 votes
0 answers
80 views

About Hedging of One-touch Options

The pricing of American Digital Call (one-touch Calls) has the following formulas, taken from P13, the textbook \begin{aligned} C_{\mathrm{d}}^{\mathrm{Am}}(S, t ; E) & =\left(\frac{S}{E}\right)^{\...
newbiesolidty's user avatar
0 votes
0 answers
98 views

Monte Carlo option pricing

Can someone please confirm if I understood this correctly. The Monte Carlo method for pricing path-dependent options essentially gives you a multitude of price processes, which you use to determine ...
artemars's user avatar
0 votes
0 answers
40 views

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
  • 103
0 votes
0 answers
68 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
0 votes
0 answers
287 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
  • 113
0 votes
0 answers
171 views

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
0 votes
0 answers
69 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
  • 113
0 votes
0 answers
75 views

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 ...
user avatar
0 votes
0 answers
137 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
  • 1
0 votes
0 answers
155 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