# Questions tagged [option-pricing]

Questions about models for the valuation of option contracts.

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### Pricing Different Strike Put With Call Option Price

How do we find the implied volatility from the price in a call option and apply it to another option without a calculator? Or is there actually a better way? For example, given a 25-strike 1.0-expiry ...
388 views

### Importance sampling for Monte Carlo with local volatility in practice

I am given a diffusion with a local volatility to price barrier options: $$dX(t)=X(t)\mu dt+X(t)\sigma(t,X)dW_t$$ I want to use Importance Sampling to price barrier options "far" out of the ...
97 views

Consider a derivative which depends on $n$ assets with price vector $X=(S^1,\dots,S^n)$. The derivative value $V_t$ is given by the function $v(t,S)$, so that the hedge ratios for the hedging ...
154 views

### Kou model — solving PIDE for European and American options in Python

Toivanen proposed$^\color{magenta}{\star}$ a method to solve the partial integro-differential equation (PIDE) with a numerical scheme based on Crank-Nicolson. In particular, he proposed an algorithm ...
104 views

### How to get the fair value for an option with variable strike?

I'm dealing with a plain vanilla written put but my strike is linked to this formula: $$K=(7 \cdot EBITDA\cdot Net Debt)\cdot [\%P]$$ where EBITDA = EBITDA of the company as of the last closed and ...
1 vote
276 views

### Floor vs Receiver Swaption with Equal Strike

Let's say we have the following two instruments. A 5x10 floor (5-year floor, five years forward) with a 4% strike on 1-year SOFR and A 5 into 5 European receiver swaption (right to enter into a 5-...
65 views

### Pricing look-back option

I have the monthly price data of a stock starting from December 2020 and I am considering a EU style look-back option issued in December 2020. The payoff at maturity of the look-back option is given ...
79 views

### What will be the payoff equation of a GBPUSD European Exotic option/FX forward with Notional in USD [duplicate]

Given the currency pair , GBPUSD with spot price as $S_t$ at time $t$, Strike price as $K$, $I$ is an indicator function indicating if GBPUSD is below the "Knock-in-Rate" at expiry, $L$ ...
108 views

### Closed form / analytical solution for bespoke (but vanilla) Option

Question: I want to derive closed form expression (similar to the Black Scholes formula for a call price) for the payoff below. I would like to do it from first principles starting with Expectations ...
1k views

128 views

### Monte Carlo methods: Choosing the best measure

When pricing derivatives using Monte Carlo methods, we take outset in the risk neutral pricing formula which states that we need to calculate the expected value of the discounted cashflows. To do this,...
32 views

### How to calculate option premium stop loss if underlying reaches a certain value near the strike price given the current implied volatility

I have sold a put option. The market is likely to open negative on Monday, the expiry of option is on Thursday. I have a certain stop loss level in my mind to exit this position if the index reaches ...
2k views

### Probability of an Option maturing In-the-money vs. Volatility

How will the probability of an option ending up in the money change if the volatility of the underlying stock increases? Intuitively, I think the answer to this is that if volatility goes up the ...
1 vote
456 views

### Converting implied volatilities into digital option prices

I have Black and Scholes (1973) implied volatilities computed and I would like to convert these IVs to digital option prices using a Black and Scholes type of formula, I can't find a formula to do ...
151 views

### Best tool to find an optimal option? [closed]

I like to sell uncovered put options, using my valuation of the company as the strike price. I'm looking for a tool that takes stock identifier and strike price as input and outputs the optimal ...
127 views

### Black Sholes Options Pricing Clarification Questions [closed]

I am interested in pricing American Call and Put Options using BSM and I am new to exploring options prcing. I have some questions here that would really remove the confusion I have on how to more ...
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### Pricing an option with a certain payoff

Suppose an option with a payoff function $$\max((1+k)S_1,kS_2)$$ where $S_1, S_2$ are stock prices and $k>0$ is a constant value. To value such an option, one would decompose this payoff function ...
1 vote
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### Theta using black scholes when time to maturity approaches 0

When time to maturity tends to 0, like on expiry day, denominator $\sqrt t$ in becomes 0 and the first term in the formula becomes large enough to make theta of the contract more than its premium. How ...
70 views

### Why is it said that Girsanov’s theorem destroys the tractability of the process which is undesirable for quantitative finance applications？

I am reading the paper "Risk-neutral pricing techniques and examples" by Robert A. Jarrow et al., and it is said that Girsanov’s theorem destroys the tractability of the process which is ...
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### How to calculate profit loss curve of a put option [closed]

I am using the black scholes method to calculate the premium for selling put option using the py_vollib package in Python. I can calculate the premium for a put option that has an arbitrary strike. ...
71 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 ...
69 views

### Ito formula and confusion with the differential operator $d$

Thanks for visiting my question. Im am currently working on this paper (https://arxiv.org/abs/2305.02523) and I am stuck at page 21 (Theorem 14 proof). First these SDE's were defined: \begin{align*} ...
72 views

1 vote