Questions tagged [exotics]
The exotics tag has no usage guidance.
49
questions with no upvoted or accepted answers
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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 ...
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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 ...
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3
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0
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150
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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
3
votes
0
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232
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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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3
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0
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106
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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 ...
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3
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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 ...
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3
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0
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133
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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 ...
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2
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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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2
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0
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103
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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
2
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0
answers
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 ...
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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 ...
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2
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0
answers
78
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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 ...
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2
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0
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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 ...
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2
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65
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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 ...
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2
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174
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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-...
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2
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2k
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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 ...
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2
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0
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275
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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 ...
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2
votes
0
answers
185
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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?
...
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2
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413
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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 \...
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2
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127
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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?
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1
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0
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67
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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 ...
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1
vote
0
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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 ...
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1
vote
0
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148
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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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0
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69
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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 ...
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0
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106
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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 ...
1
vote
0
answers
86
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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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1
vote
0
answers
103
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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
vote
0
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74
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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 ...
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1
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0
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271
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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 \,...
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0
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151
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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. ...
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0
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175
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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 ...
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1
vote
0
answers
113
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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 ...
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0
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445
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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&...
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1
vote
0
answers
346
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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 ...
1
vote
0
answers
259
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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 ...
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0
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0
answers
70
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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 ...
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0
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0
answers
32
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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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0
answers
50
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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 ...
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0
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232
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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 ...
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0
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113
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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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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 ...
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74
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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
0
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132
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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 ...
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0
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0
answers
138
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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 ...
0
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0
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250
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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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0
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487
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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 ...
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98
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Types of financial derivatives
I am looking for an explanation for different types/grades of derivatives.
For example we have various asset classes:
equities
FX (currency)
derivatives, etc.
Or different types of secured debts, ...
- 221
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98
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Valuing Long-Term (5+ year) Cliquet Options
I'm trying to figure out how to value long term equity cliquet options with expirations 5+ years out. Even for SPX cliquets, vol surfaces are from what I can tell non-existent. Where would someone get ...
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0
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0
answers
831
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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 ...
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