# Questions tagged [option-pricing]

Questions about models for the valuation of option contracts.

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### FX Option - Conversion of Premium Currency From Domestic to Foreign Currency

I’m trying to price a put FX option on USD/TRY exchange rate. How can I calculate the premium in foreign currency (USD). Can I directly divide the domestic premium by the spot rate? The premium for ...
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### resolve the DUPIRE Forward PDE

I want to implement the "Dupire forward PDE". I will use this PDE to calibrate a parametric local volatility model. Could you recommend an article or link that explains concretely how I can ...
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### Simple arbitrage pricing of bond option

This is Tuckman fixed income security textbook. The text here is trying to price a 990 six month call on a six month zero bond. When we replicate the portfolio, where is the F_.5 coming from? My ...
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### Vol Shift by Term over Time

Below is a plot of AAPL vol vs. Strike for October and November, last market close vs 3 weeks prior. The plot shows that both curves shifted up by an approximately constant amount with the October ...
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### Potential arbitrage opportunity or fallacy?

Suppose we have two European options with the same expiration: a call priced at $c$ with strike price $K_1$ and a put priced at $p$ with $K_2 (>K_1)$. Further, suppose the zero-points of the two ...
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### Volatility in simulated paths different to monte carlo parameters

I am trying to convince myself that I have set up my monte carlo simulation correctly by looking at the results and trying to get them to agree with the model parameters. Please help me understand ...
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### FX risk reversal approximation

i see this risk reversal approximation in Uwe Wystup's https://www.mathfinance.com/wp-content/uploads/2020/09/wystup_vannavolga_eqf.pdf in which the approximation of a risk reversal is given by: vega ...
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### What pricing curve to use for different instruments?

When pricing derivatives, their price depends on some yield curve, which is used to discount future cash flows. But there are many yield curves, dependent on what they're bootstrapped from. There's ...
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### Price of options when exercise date doesn't match nodes of BDT Tree

I think I'm missing something obvious here, but here I go. I'm studying pricing of bonds with embedded options using Black Derman Toy. I understand tree construction and its application for simple ...
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### Find a formula for the price of a derivative paying $\max(S_T^2-K,0)$ [duplicate]

Develop a formula for the price of a derivative paying $$\max(S_T^2-K,0)$$ in the Black Scholes model. What I tried: \begin{align*} e^{-rT}\mathbb{E}^\mathbb{Q^0}[\max\{S_T^2-KS_T,0\}] = e^{-rT}\left(...
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1 vote
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### Real options: discount rate for the value of the underlying security

This is an example inspired by Chapter 3, sub-chapter "Combining decision trees with real options(DTRO)", sub-sub-chapter "Case 4 Part Two", of Boer, F.P., 2004. Technology ...
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### Black scholes, issues inferring T(time to expiry) andS (underlying price)) from wrds SPX dataset

I'm working on a project with the SPX option data from wrds. This data doesn't provide the underlying price at the time of the observation, or the time to expiry at the time of the observation. ...
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### Most Accurate Method for Pricing crypto Options

I'm currently studying financial derivatives and I've become particularly interested in cryptocurrency options, specifically Bitcoin. Given the unique characteristics of Bitcoin and other ...
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### Deep calibration in the Heston Model

I am doing my master thesis on deep calibration in the Heston Model, and after reading a few academic paper (eg. Horvath et al. 2019) on the subject I understand pretty well the procedure and the ...
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### How should I go about computing the 30-day model free implied volatility (MFIV) daily?

As the title suggests, how can I calculate the MFIV daily (for a market index)? My MFIV follows the procedure described in DeMiguel et al. (2013) Improving Portfolio Selection Using Option-Implied ...
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### Mark Joshi, The concepts and practice of mathematical finance exercise 3.6

This is an exercise from Mark Joshi's book (exercise 3.6): "A stock is worth 100. Each month its value increases or decreases by precisely 10. The riskless bond is worth $e^{r t}$ at time $t$ ...
1 vote
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### Does it make sense to use Black Scholes greeks to attribute P/L given the Black Scholes assumptions don't hold?

I've seen some takes from experts in the industry (Benn Eifert for example) who say that we should treat Black Scholes as a translation mechanism for putting price into a more workable form (IV). They ...
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### 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 ...
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### Benth: Risk-neutral measure in incomplete markets

I am currently working on Benth and Benth "THE VOLATILITY OF TEMPERATURE AND PRICING OF WEATHER DERIVATIVES" and i am stuck at following paragraph at page 10, which is about risk-neutral ...
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### Where to get Historical Options Data [duplicate]

Where can I find the historical Options Data of Bank nifty? By historical I mean more than 1 year.
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### Improvement in lower bound of American call with discrete dividends

Question Suppose a stock pays 2 discrete dividends $d_1, d_2$ at times $t_1, t_2$ respectively, where $t < t_1 < t_2 < T.$ Assume the risk-free rate, $r$, is a positive constant. Given that ...
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Black-Scholes gives us the following formulae for the prices of European calls on an underlying that does or doesn't pay continuous constant dividends (of proportion $D$): C^E_D(S_t,t,K,T)=e^{-D(T-t)...