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.

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38 views

How to choose a strike price for buying VIX calls as a hedge? [closed]

I am thinking of buying VIX call options to hedge my portfolio that has positive delta exposure to SPX index (owning equities in S&P and holding long-dated SPX short puts). This is because if SPX ...
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102 views

The most appropriate volatility model

Which would be the most appropriate models to find volatility trading opportunities (i.e. plot a theoretical volatility smile I can rely on) for the following instruments: Options on equity Options ...
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delta hedge asset exchange option with futures on spreads

say I have an option that exchange A with B. If I can only hedge it using futures on the spreads between them, how would I do it?
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IR Cap Forward Premium

A well known broker quotes cap/floors as spot premium for ATM straddles but forward premium for the skew, given that the difference between spot premium and forward premium is that the option is not ...
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What are the situations when bid offer is not applied? [closed]

Different situations when bid offer is not incurred at the monthend in market making position
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129 views

For what options does the “delta hedging rule” apply?

I'm reading Shreve's Stochastic Calculus for Finance, Volume II. In chapter 4, he derives the "delta hedging rule": $$\Delta(t) = c_x(t, S(t)) \text{ for all } t \in [0, T)\text{.}\tag{1}$$ ...
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Finding optimal calendar spreads and diagonals

I am looking for some pointers on risk/return profiles of calendar spreads and diagonals with different strikes and expiration dates, preferably based on historical backtests with SPY options. Please ...
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1answer
96 views

Put-Call Parity for Long Time Frames

Suppose we're dealing with European call options and put options on stocks (say Berkshire Hathaway, that pays no dividends and is unlikely to for the foreseeable future), and assume that the current ...
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1answer
65 views

How to price a call option with long maturity (5 to 10 years)

I am trying to find the industry accepted method on how to price a long term American call option (maturities 5 to 10 years) on an underlying which is an accumulation fund (so no dividend payouts) ...
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80 views

FX Options price vs implied vol

From the screenshot below, what is the difference between the option price by strike in the table versus the implied volatilities by delta in the chart at the bottom? https://www.investing.com/...
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99 views

multi asset option pricing

Assuming option on each single asset can be priced by Black Scholes, i.e. both S1 and S2 follow GBM. The correlation between vol of S1 and that of S2 is rho. Assuming constant interest rate, no ...
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71 views

Early Exercise of American Options on dividend-stock

I am reading the chapter 15 of Options, futures, and other derivatives by John Hull. Specifically, 15.12 Dividends-American Call Options. I am stuck while proving the fact that exercising an American ...
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Differences in implied volatilities of warrants and options

I have another question regarding the implied volatilities of warrants: When it's said they are overpriced compared to classical options, that means their implied volatility is higher than for similar ...
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Do options have diversification benefit?

Imagine the universe where we have one investable volatile asset but with an available liquid options chain for it. The question: can a portfolio consisted of this asset, and some options have any ...
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124 views

Index with negative gamma

I understand the principal of being gamma negative or positive, but what I struggle to understand is that how can we say that an index options for example SPY is gamma negative ? how do we do this ...
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Any research paper further studying the conclusions given by Derman Regimes of Volatility

As we know Emanuel Derman mentioned 3 different market conditions where sticky delta, sticky strike, and sticky implied tree are relatively best suited. Are there any relevant research paper further ...
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102 views

Solving the Black-Scholes for any arbitrary payoff

Good evening, I'm currently working on the following problem and I would like an opinion on it, Let's consider the Black-Scholes model with (time-varying) volatility, $\sigma = \sigma(t)$, and (time ...
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Volatility for options pricing: fixed window or match maturity?

When calculating the volatility or covariance matrix of stock returns for the purpose of pricing a vanilla option on an underlying, it is difficult to choose the window over which the volatility ...
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82 views

SX5E option hedge

There are only quarterly contracts (3,6,9,12) for SX5E futures. In practice, how do we hedge SX5E option at expiry for non-quarterly contracts (say April)?
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Value american forward as american put and american call

Can I value an american forward with strike K and maturity T as the sum of a bought Call and sold Put, both american with same strike K and maturity T? If not, why?
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Adapt SABR Hagan/Obloj model from swaptions to treasuries options

I am a young intern in a brokerage company and I am currently working on developing a new pricer. I would like to encode a skew-visualisation tool and the best way that appeared to me is the SABR ...
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62 views

What is the relationship between Vanna and Gamma?

I'm trying to build a crude model for the effects of delta hedging on major indices like the S&P 500. My background is more in pure mathematics so a lot of this stuff is new to me. That said I ...
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25 views

On P and L of backspread

Does anyone know how the P and L on put backspread changes as a function of implied volatility and longer expiration? One wants as much gamma as possible as far as I understand, in turn being related ...
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47 views

Solution of the following PDE using European put option

I'm reading some articles about PDE and I found the following PDE, with $q_1,A >0$: $g_t(t,y)+ \beta^2yg_y(t,y)+\frac{1}{2}\beta^2y^2g_{yy}(t,y)-q_1 g(t,y)=0 \quad (t,y) \in [0,T), \times (0,+\...
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29 views

The put-call parity have to be fulfilled by an asian option

Coming from here: https://quant.stackexchange.com/a/7616/43679 we have that for a European option, and due to the put-call parity, due to the non arbitrage rule, the volatility for a put and a call ...
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Breeden and Litzenberger formula for pricing state-contingent claims

I am reading these two papers Prices of State-Contingent Claims Implicit in Option Prices and Implied Risk-Neutral Distribution: A Comparison of Estimation Methods. I understand how we get the formula ...
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Calculate error at all spatial indices for a given time step between BS equation and its numerical solution using explicit method

I am using the explicit finite backward difference scheme to discretize and calculate the price of an European call option in a discretization stencil. My goal is to find the error at a given time ...
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Pricing binary options

A binary option pays an amount of money if an event takes place and zero otherwise. Binary options are usually used to insure portfolios against large drops in the stock market. On March 25, 2021 the ...
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Theoretical returns of Short Straddle in an efficient Options Market

Assumptions: Market is efficient All assumptions of BS Model apply Implied Volatility predicted using BS model is same as actual volatility in future. Needless to say that the volatility is constant ...
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Adjusting derived volatiles using skew

Once we obtain a prediction for the future volatility using (GARCH, HARQ, etc), do we have to adjust the implied volatility dependent on the strike price. How would we incorporate a skew versus a ...
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SABR Model and Adjustements to implied volatilies

After finding the volatility using a SABR model; does one need to readjust the volatilities accordingly to the different strike prices and skew. Intuitively, if the SABR model incorporates the ...
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329 views

How do market makers calculate the IV for options?

This might be silly or basic question but I'm wondering how do a market makers do decide on fixing an option IV on certain level ? how do they do theirs calculations ? Thank you
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Will an options contract always be worth more than it's intrinsic value ? Also if it's very expensive, will it be hard to sell? [closed]

So I'm wanting to know if my call option will be worth more than its intrinsic value and also if lets say it ends up being worth 20k will people be buying it on the market ?
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Given a cointegrated portfolio of stocks, how to build a synthetic option position by using the options on the stocks

The setting Let stocks $A$, $B$, and $C$ are cointegrated. Moreover, we know the weights of the cointegrated portfolio (scaled so that the absolute value of the maximum weight is $0.5$): $w_A = 0.15$ ...
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What are some liquid Asian options markets?

I have some ideas about Asian options that I would like to test with historical market data. I am therefore looking for some fairly liquid Asian options markets, preferably ones with publicly ...
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54 views

Partial Derivatives of Finance

I'v taken finance a long time ago and after a few days of fiddling around with the topics, I can't seem to remember any of them. Can you help me with this question? A former banker designs an option ...
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45 views

Value of security log contract

I am studying the geometric Brownian motion of stock S with an expected return and volatility. And we can write the standard GBM as the form $dS(t) = \mu S(t)dt + \sigma S(t)dZ(t)$ where Z follows a ...
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82 views

Relationship among three European call options

Consider three European call options with strikes $K_1<K_2<K_3$ all at the same expiration time T. If we assume the absence of arbitrage at all earlier times t, there is a derived equation from ...
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Valuing Option Credit Spreads

I'm trying to come up with a metric to value and compare spreads. One way that I was doing this was to compute the Expected Value of the spread. To calculate the expected value I used the following ...
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Options probability of profit

I’m trying to determine if there’s a simple way to determine the probability of profit of options and by extension different options strategies. The closest I’ve found to “plug and chug” type formulas ...
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VIX options underlying: Can I safely use Put-Call parity instead of VIX futures

Couple of basic questions: 1- I'd like to calculate the implied of VIX options intraday, without access to intraday VIX futures. In the absence of VIX futures as underlyings, what would be the ...
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When is the effect of skew most potent for an early exercise option?

Let us say I have a Bermudan option which I can terminate at 3 possible dates. When can I expect the discrepancy between a local vol and a stochastic vol model to be highest (assuming both are ...
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Why did Nifty50 close at 15557 when it was at 15582 at 3:30 pm IST? [closed]

I am a student and trader. I was recently interested in f&o trading recently, so I decided to enter with a hedge strategy. I saw the market go in my favour as the clock reached 3:30 and Nifty was ...
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246 views

Trading strategy for a misspecified density

I am trying to implement a strategy that exploits potential misspecifications in density predictions (e.g.: long states with too-low probability; short states with too-high probability). In particular,...
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Valuing an electricity swap

A colleague of mine and I are debating how to price an electricity swap. Keeping in mind that electricity futures are delivered over a period of time rather than at a point in time, I maintain that ...
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34 views

Calculation Option Greeks per day using Quantlib

I'm trying to calculate option greeks and impVol for a series of European index options (they are in a DataFrame) using QuantLib. Is there a way to get the Greeks and impVol on a daily basis? Thank ...
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span for spreads using options

I am trying to calculate the margin required for a spread in futures. The cme rules says that they use SPAN which goes through a few different cas to see what happens to the portfolio. If I have 2 ...
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141 views

Forward starting zero-coupon bonds

We trivially have that: $$\frac{Z(t_0,t_1)}{Z(t_0,t_2)}=1+\tau L(t_0,t_1,t_2)$$ Where $L(t_0,t_1,t_2)$ is the forward Libor between $t_1$ and $t_2$, as of $t_0$. Simply inverting this relationship ...
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Understanding the BAML MOVE index

Hello quant community. I am looking for more information about a very interesting index: BAML-ICE MOVE index. There is very little literature online that details how the index levels are calculated ...
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cme options volume

I am lookin at https://www.cmegroup.com/trading/interest-rates/stir/eurodollar_quotes_volume_voi.html?foi=O&optionProductId=3#tradeDate=20210312. It says about 16 million in options was traded. ...

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