# Questions tagged [option-pricing]

Questions about models for the valuation of option contracts.

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46 views

### Meta-Theorem Bjork, arbitrage and completeness

In Tomas Björk's Arbitrage Theory in Continuous Time I found this Meta-Theorem: What does it mean "meta-Theorem"? That it cannot be proved and that this is only such an indication as to ...
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### How to estimate the risk-free rate when pricing options - calibration

I would like to calibrate my model to the current call option prices (with 17 different maturity times) but I don't know how to choose a risk-free rate in this case.
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### Stocks with same volatility but different drifts

In the book Quant Job Interview Questions & Answers, in section 2, question 2.4 says suppose two assets in a Black-Scholes world have the same volatility but different drifts. How will the price ...
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### Why does implied volatility decrease without a change in stock price?

I was lookin at some stocks and find that implied volatility changes without the stock price moving too much. What are the causes?
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### Black Scholes model calibration with Python - small error in the code

Hey I write this code to calibrate Black Scholes model, but I got an error and I don't know how to correct it. Can anyone look and tell me what should I do? ...
35 views

### Kou model matlab/python code [closed]

Hey I need some code to implement the Kou model to price call option. I prefer Python but can be any other language. I am not a programmer, so I can not write it myself. Cna anyone help me?
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### How to select data for model calibration

I would like to calibrate the model to the current price of an Apple stock call option. How to select data for calibration? Because for this stock there are a lot of call options with 17 different ...
56 views

### Why does the closed formula result for a Barrier option price deviate so strongly from the Monte Carlo approximation?

I am trying to price a down-and-out, leveraged Barrier option using the closed form formula of Hull (2015). When the price of the underlying asset falls and hits a certain barrier (H), the contract ...
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### How to calculate dividend yield - option pricing

Hey how do you calculate the dividend rate if you want to price your stock options eg apple? Just take the dividends paid last year and divide by today's share price? This page reports 0.85% (https://...
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### What put options would the Universa Tail Fund have bought?

According to this Bloomberg article, Universa was up 3,600% in March 2020, by hedging with extremely out-of-the-money puts: https://www.bloomberg.com/news/articles/2020-04-08/taleb-advised-universa-...
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### Price of Call & Put Spreads as Volatility Tends to Infinity in Bachelier Model

In the standard Black Scholes model, as we take volatility to infinity, the price of call spreads goes to zero and the price of put spreads goes to the difference in strikes. I ran a simulation using ...
59 views

### Expected Option Payoff equal to 0 [closed]

How much would you sell an option whose expected payoff equals 0?
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### Change of Measure for Jump Process with Drift and no Brownian motion

If on $(\Omega, \mathcal{F},\mathbb{P})$, $r>0$ is a constant and $Z_t =\sum_{i=1}^{N_t} Y_i$ where $Y_i$ are i.i.d with $E[Y_i]=L$ denotes the size of the jump and can have distributions like ...
168 views

### Why do we not use copula for forward starting options?

Why do we use copulas for spread options but do not use them to correlate random variables across time, such as in the forward starting option?
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### Estimate profit/loss of short-term SPX options with only underlying price (entry/exit) and delta [closed]

If we know the underlying price (SPX index or SPY) at entry/exit of a short-term trade with SPX options, what is the best way to estimate the profit/loss of the trade? Underlying profit times delta ...
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### Infinitesimal Generators and Expectation of First Hitting Time as Solution of Differential Equation

I've been learning about Linear Diffusions and how their infinitesimal generators can be used to relate expectations and deterministic differential equations. Let $X$ be an one-dimensional diffusion ...
322 views

### Confusion about replicating a call option

Assume standard Black-Scholes model, $$dS(t)=S(t)(rdt+\sigma dW(t))$$ where $\sigma$ is a constant and $W(t)$ is a Brownian motion under the risk neutral measure. A call option is replicable, so if we ...
75 views

### Why are these deep in-the-money FLEX options seemingly bought at a discount?

98% of the initial reference value is .98 x 267.88 dollars, which equals 262.52 dollars. However, the market value of each call contract they purchase is 247.42 dollars. How are they purchasing these ...
90 views

### Options when there's no VolSurf - Emerging/Frontier Markets

Context: Most emerging/frontier markets have no or very thinly traded volatility surfaces for their equity markets (single name and indices alike), furthermore, they usually have restrictions on Short-...
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### How is the implied risk neutral density affected when changing numeraire?

For example i would like to price \begin{equation*} E^{Q} \left[ e^{-\int_{0}^{T}r_{s}^{cur}ds} f \left( S_{T_f}^{cur_1} \right) | \mathcal{F}_{0} \right] = B_{cur}(0,T)E^{Q^{cur}_{T}}[ f(S_{T_f}^{...
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### Best practices for C++ development in quantitative finance [closed]

I'm been working as a quant for the past 10 years, but have managed to avoid any significant C++ projects until now. I typically use a combination of kdb, R, and python. I've now been tasked with ...
80 views

### Implied volatility of hypothetical options market

I am attempting to create a volatility surface for a US electricity market that has a liquid futures market but nearly non-existent options market (<5 trades per month across all strikes and ...
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### Value Option with Forward Volatilities

That is probably a rather simple question but I got confused and would be very thankful for help. Imagine we are in 2015 and have an option that expires in either 2016, 2017, 2018, 2019, 2020 or 2021. ...
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### Convenience yield

I need to price an option on gold in some local currency. If I use the Black Scholes formula, then I need to input convenience yield for spot gold. Given generally available market data, how can I ...
553 views

### What is the Risk Neutral Measure?

What is the Risk Neutral Measure? I don't believe this has been answered on the internet well and with all the parts connecting. So: What is the risk neutral measure/pricing? Why do we need it? How ...
177 views

### Software implementation for valuation of exotic options

I am looking for some software implementation of pricing Average Price Call option (APO) mostly Python (or any other package.) Exercise style is ...
61 views

### CDS Option pricing in quantlib python

I am newbie in Python and I am trying to price a CDS Option in quantlib Python. I have the below code: ...