Skip to main content

Questions tagged [options]

A contract that gives the owner the right, but not the obligation, to buy or sell a security at a fixed price in the future.

Filter by
Sorted by
Tagged with
0 votes
1 answer
108 views

What is the P&L

I have a question about the P&L calculation, please. If we sell a call option on a stock with a volatility of 16%. Theta is worth 100€/day. Let's assume that the spot moves by 2% in one day. What ...
Raphael Morel's user avatar
0 votes
1 answer
43 views

What to predict in delta-gamma hedging?

I am working in delta-gamma hedging with machine learning. I guess I have to predict gamma (since predicting gamma tells you how delta will behave) but I don't know why is it needed. I think that a ...
Kilkik's user avatar
  • 101
0 votes
0 answers
24 views

Change in price of underlying impact on delta gamma and vega

I am working my way through Natenberg's book as well as the accompanying workbook, and there is a question I cannot figure out (p86). Futures price = 149.65 time to August expiration = 8 weeks annual ...
nickhealy's user avatar
1 vote
0 answers
42 views

Summarizing the Volatility Skew as a Single Number

Related questions to this topic/subject: Expressing Volatility Smile as One Number Volatility skew and how to capture it? In both posts, the authors/respondents recommend using the second derivative ...
KaiSqDist's user avatar
  • 1,122
0 votes
0 answers
20 views

Barrier Reverse Convertible Coupon

I want to ask regarding Barrier Reverse Convertible, I got this from https://bookdown.org/maxime_debellefroid/MyBook/barrier-reverse-convertibles.html "The price of this barrier reverse ...
testingBRC's user avatar
0 votes
1 answer
62 views

pricing option with two volatility regimes

How would I price a 1-year ATM European call option, given I know that for the first 6 months, the realized volatility will be 20% and the latter six months, the realized volatilty will be 90%? One ...
Sameer Lal's user avatar
0 votes
0 answers
28 views

Heston model calibration to option prices and implied volatility

I hope that you are having a great day, I am trying to write a research paper on the Heston model deep calibration. I noticed during my literature review that the most common approach is to calibrate ...
sxminho's user avatar
  • 33
0 votes
0 answers
40 views

Market Making in ETF, how the hedging is typically done

I was wondering how Market Makers in ETF hedge themselves. I believe that they don't buy the underlying basket because some of the stocks could be extremely illiquid. So my guess is that they buy CALL/...
option_vol's user avatar
2 votes
0 answers
49 views

What is the impact of the rollover of VIX futures contracts on VIX options?

I am inquiring about the potential impact of futures rollover on VIX options prices. I am currently exploring diagonal and calendar spreads on VIX options, and I need to modelize this. Your insights ...
Samuel Dana's user avatar
0 votes
1 answer
61 views

Leveraged ETF construction

It says that leveraged ETF are constructed using options/swaps, but I didn't see any example of how you can replicated a leveraged index using options and swaps. For example taking the S&P500 ...
missing_name's user avatar
0 votes
0 answers
77 views

How to access the Black Sholes Formula through the Distributive Law?

Recently I read a comment on how to interpret the Black Sholes Formula and more specifically how to wrap your head around the d1/d2. Although there were many good comments, this one stood out when one ...
Telefondemonen_se's user avatar
0 votes
1 answer
86 views

Constructing payoff diagram using European calls [closed]

Hello I am self studying some concepts and I am super confused with constructing payoffs. I just cannot understand this. I tried GPT to explain replication but got confusing answers. You can long or ...
CountDOOKU's user avatar
0 votes
2 answers
166 views

How to conclude which option is overpriced (by using implied volatility)

I have a small question regarding how to conclude which option is more overpriced? See the following table Option Theoretical Value Option Price Option Implied Volatility 7.00 8.00 26% 6.00 6.75 28%...
bigstreet's user avatar
0 votes
2 answers
96 views

Why do ATM options intuitively have higher Time Value (Extrinsic Value) than Out- and In-The-Money options?

I'm trying to get some intuition concerning the Black Sholes Formula and in doing so I've come across these graphs: Trying to understand the intrinsic value relationship with Options Value was ...
Telefondemonen_se's user avatar
11 votes
2 answers
853 views

Why are Black-Scholes derived greeks used for risk management when alternatives exist?

To my understanding, it is still quite common for market makers of vanilla options to use Black-Scholes greeks. My concern with this is best expressed by Pat Hagan in the original SABR model paper: &...
mrdrralph's user avatar
  • 121
0 votes
1 answer
113 views

If an option is undervalued, how does shorting a portfolio generate profit?

I am reading Hull's Options book. He introduces a one-step binomial model and a no-arbitrage argument, using the example shown in the picture below: Consider a portfolio consisting of a long ...
user546106's user avatar
4 votes
1 answer
71 views

What are the downsides of using Kim's integral equation (1990) to determine the exercise boundary of an American option?

I'm new to the industry and trying to wrap my head around American options pricing. The integral equation(1) from Kim (1990) doesn't seem to make any strong assumptions, and approximating the integral ...
Eashan Gandotra's user avatar
0 votes
0 answers
38 views

Replicating power (electricity) options in US markets

For options on power (e.g. https://www.ice.com/products/6590519/Option-on-ERCOT-North-345KV-Real-Time-Peak-Fixed-Price-Future ), how would you replicate this? Vanilla options in equities can be ...
Sameer Lal's user avatar
3 votes
1 answer
147 views

How to estimate Dealers’ Gamma Positioning

I am new here so please forgive my basic question. There are many websites and experts out there that estimate dealer gamma positions, but I don't know what they are doing. I think I understand the ...
Suzume's user avatar
  • 31
2 votes
1 answer
213 views

Options related factors forecasting cross section of returns

I came across this research paper that shows that skewness derived from options surfaces can help explain the cross section of returns. https://pubsonline.informs.org/doi/10.1287/mnsc.2015.2379 Are ...
helloimgeorgia's user avatar
1 vote
0 answers
93 views

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 ...
robertspierre's user avatar
0 votes
1 answer
127 views

PnL of a delta-hedged straddle

On Twitter, this question has been making the rounds: If you sold a 30 vol for a one year out at the money straddle, have access to free, perfect, and continuous delta hedging, and stock realizes a ...
snoreBore's user avatar
0 votes
0 answers
62 views

How do I calculate the implied dividend yield and/or the forward rate for an equity ETF?

I am interested in building an implied volatility surface for a given ETF given a set of option prices for several combinations of (call/put,strike,expiry). I am interested in different ways to arrive ...
quantypythonshow's user avatar
0 votes
1 answer
75 views

Up And Out, negative delta close to barrier

For Up And Out options, is there an intuition as to why delta becomes negative as spot approaches the barrier. Thinking in terms of replicating portfoliio I would have assumed delta is always non-...
Paul's user avatar
  • 71
0 votes
1 answer
123 views

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 ...
Maria Torres's user avatar
1 vote
1 answer
90 views

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 ...
KaiSqDist's user avatar
  • 1,122
0 votes
0 answers
16 views

Setting Bid-ask for option forward-type strips

do you know if there is any methodology on how to define spreads when fx option market maker is trying to quote for exaple various fx forward strip strategies? From bbg ovml or software which we are ...
Kos3_'s user avatar
  • 1
1 vote
0 answers
48 views

Estimating dynamics of volatility surface?

I have a daily time series of volatility smiles for an option contract. How can i calculate whether the smile is sticky strike, sticky delta or something in-between!
David's user avatar
  • 31
1 vote
0 answers
73 views

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 ...
mrdrralph's user avatar
  • 121
1 vote
0 answers
80 views

Arbitrage opportunities [closed]

I want to write a program that can find arbitrage in the curve of call prices for different strike K. So if I have a time serie with the price of call prices for different strikes and same time to ...
option_arbitrage's user avatar
1 vote
0 answers
46 views

Gamma and Delta vs Dual Gamma and Dual Delta

My understanding is that the dual delta is generally lower than the delta across all strike prices (they still have the same asymptotes at 0 and 1 for a call), primarily because options are often ...
Steep's user avatar
  • 11
1 vote
0 answers
38 views

Autocall Selling Process [closed]

I'm new in structured products and I need some help for understanding some stuff on autocall. When a client gives his money to the bank for investing in an Autocall, this money goes in a ZCB and in ...
Simon's user avatar
  • 11
2 votes
0 answers
61 views

How are opitons greeks computed for models that require numerical PDE solving [closed]

I am often told that options priced under SLV models, the Greeks cannot be exactly replicated by finite differences, but are computed at the level of the grid used to solve the PDE. Can someone please ...
AIEA's user avatar
  • 21
0 votes
1 answer
68 views

How an invesment bank make money with structured notes? [closed]

Possibly even autocallable notes. Suppose we are an invesment bank, and sell the zero-bond plus the call option to the market. Thus we set up a structured product. As far as I know, such products can ...
Vnature's user avatar
  • 133
0 votes
0 answers
23 views

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.
Aniket Surve's user avatar
1 vote
0 answers
46 views

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 ...
Hmmmmm's user avatar
  • 143
0 votes
0 answers
22 views

Earnings impact on expected return

Let's say I have the vol structure of ATM options of a stock on 4 months: $[10, 10, 13, 13]$ and i know hat there will be earnings announced on the $3$rd months. Is it possible to estimate how much ...
option_vol's user avatar
1 vote
0 answers
99 views

What is the informational content of the volatility skew?

The option-implied volatility is well-known as a measure for the risk-neutral future expected risk for the underlying asset. However, the market prices of options (across different strikes) imply ...
KaiSqDist's user avatar
  • 1,122
1 vote
1 answer
146 views

The partial derivative of a call option with respect to $t$ [closed]

In Black-Scholes related computations, why do we not treat the stock price $S$ as a function of $t$ when taking partial derivatives with respect to $t$? For example, if $$c(t,T)=SN(d_1)-Ke^{-r(T-t)}N(...
user81883's user avatar
  • 111
0 votes
0 answers
25 views

Constructing a monthly option from quarterly options and monthly futures

Say we have quarterly options and monthly futures where the strike price is based on the average price of spot during the corresponding period. There are no monthly options. Can I effectively ...
Sigma's user avatar
  • 1
0 votes
1 answer
136 views

Why is my Risk Neutral Density recovery failing?

I'm working on a project to recover a known Risk Neutral Density from option prices, using the Breeden-Litzenberger formula (assuming a continuum of option_price(strike_price), the second derivative ...
v.y.'s user avatar
  • 31
0 votes
0 answers
99 views

Master Thesis about Heston vs. Duan option pricing model

I would like to write my master's thesis on volatility in option pricing. My idea was to compare the stochastic volatility model of Heston 1993 with the GARCH option pricing model of Duan 1995. For ...
Aaron 's user avatar
0 votes
0 answers
95 views

Positive Theta for an At The Money option (with real data)

Ive been doing some work on looking at historical options prices on a stock index using real data, and I came across an odd example that I cant really get my head around. I am aware that for extreme ...
Arron's user avatar
  • 1
0 votes
0 answers
57 views

About Hedging of One-touch Options

The pricing of American Digital Call (one-touch Calls) has the following formulas, taken from P13, the textbook \begin{aligned} C_{\mathrm{d}}^{\mathrm{Am}}(S, t ; E) & =\left(\frac{S}{E}\right)^{\...
newbiesolidty's user avatar
1 vote
0 answers
131 views

Validator for Risk-Neutral Distributions Derived from Option Prices

I've developed a validator for risk-neutral distributions. I did this for the purpose of testing the risk-neutral distributions generated by a Spectral Analysis risk-neutral density recovery method, ...
v.y.'s user avatar
  • 31
1 vote
1 answer
88 views

Deriving eq. 5 in Carr & Madan 1998

I don't understand this derivation from Carr & Madan (1998), specifically the derivation of the third term on the left (left-most term on the bottom line). My attempt Let $h(t, F_t) := V(F_t, t; \...
jds's user avatar
  • 138
0 votes
0 answers
43 views

Real Options for investment valuation (Basics)

Thank you for checking out this post. I already asked a question once on this forum, and you did a great job helping me out with that topic, as I couldn’t have come across a solution myself. This time,...
Bourrinou3's user avatar
0 votes
1 answer
106 views

Calibrating SABR -- Can I calibrate the forward like any other parameter?

Essentially the title to the above. I am using SABR to price caps and floors (as well as options on SOFR futures). I currently have two calibration techniques, the first calibrates based on rho and nu ...
Zac Likes Vol's user avatar
1 vote
2 answers
307 views

Infer implied volatility skew/smile from implied distribution

My question is closely related to the answer of @LocalVolatility and his blogpost. I am trying to reproduce his first figure and I am struggling with the implied volatility. With the help of $$ f(S) = ...
HJA24's user avatar
  • 35
1 vote
3 answers
181 views

Why do one's current holdings matter when selling calls?

I was reading about selling calls, where there is a distinction between selling a naked call versus a covered call. I fail to understand why owning the underlying matters in the case the call's buyer ...
user1337's user avatar
  • 153

1
2 3 4 5
49