Questions tagged [option-pricing]

Questions about models for the valuation of option contracts.

1,639 questions
Filter by
Sorted by
Tagged with
36 views

Which is more Appropriate way to calculate Leverage with Options Contracts? [closed]

the connecting of words and bold colors was because of something here in the posting feature, it would not let me take it away when originally posted. i have re-copied and tried correct those errors. ...
188 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 ...
24 views

Some questions about the pricing and the construction of Fixed Coupon Notes (FCN) [closed]

I'm currently studying Fixed Coupon Notes (FCN) out of my own curiosity. I've already read some articles and watched a video about it. One of the articles about FCN: https://cegafi.medium.com/...
1 vote
2k views

FX Option pricing on Forward vs. Spot

In a GBM world with riskless domestic and foreign interest rates, what would be the correct model for a FX plain vanilla option given the statement that this option is priced on the forward? I guess ...
8k views

How do we use option price models (like Black-Scholes Model) to make money in practice?

In quantitative finance, we know we have a lot of option price models such as geometric Brownian motion model (Black-Scholes models), stochastic volatility model (Heston), jump diffusion models and so ...
33 views

Monte carlo pricing on zero coupon bon under the Vasicek model [closed]

I would like to price an European call on zero coupon bond under the Vasicek model. I am planning to follow the Excercise 33 (hereby) from Lamberton Lapeyre (Introduction au calcul stochastique ...
46 views

Stopping times, question on exercise

I'm completing exercises from Steve Shreve - Stochastic Calculus for Finance I and I'm stuck on one subtask for which I can't find missing element for 11 stopping ...
109 views

Very close local volatility and implied volatility using Dupire's equation

I used Dupire's equation to calculate the local volatility as in https://www.frouah.com/finance%20notes/Dupire%20Local%20Volatility.pdf and Numerical example of how to calculate local vol surface from ...
17k views

Probability of touching

For a vanilla option, I know that the probability of the option expiring in the money is simply the delta of the option... but how would I calculate the probability, without doing monte carlo, of the ...
97 views

How to determine break-even price on a delta hedge?

Suppose there is a portfolio of short $x$ shares and long 1 call option. This call option has a strike and premium. If the stock moves up, you loss money on the short position but gain on the option ...
223 views

Black and scholes option pricing

I have to solve the following problem in the Black and scholes model: find the price at anty $t\in[0,T)$ for an option whose payoff at the maturity is: 0 \ \ \ \text{if} \ S_T<K_1\\...
56 views

In the derivation of the Black-Scholes PDE, using delta hedging, how is this linked to the risk neutral valuation? [closed]

I was reading this paper: http://www.columbia.edu/~mh2078/FoundationsFE/BlackScholes.pdf I don't understand the paragraph here: "The most interesting feature of the Black-Scholes PDE (8) is that ...
245 views

Configuring barrier option in Quantlib-Python

Is there a possibility to configure the period the barrier is active, using Quantlib for python? Namely to set up the start and the end dates we compare the spot vs the barrier. If we look at quantlib-...
1 vote
56 views

Why should delta-neutral backspread always result in credit?

Natenberg mentions in chapter titled "Volatility Spreads" : under the assumptions of a traditional theoretical pricing model, a delta-neutral ratio spread where more options are purchased ...
1 vote
138 views

67 views

Extension of CRR model

I'm considering an extension of the binomial model where the risky asset can take three values at each node, that is \$ S_{t+1}=\left\{ \begin{array}{ll} S_t\cdot u\\\nonumber ...
1 vote