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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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1answer
72 views

Relation between one touch and binary option

Is there a relation between the price of a one touch option and the price of a binary option? By one touch option, I mean an option that pays off a fixed amount if the price of the underlying is ...
1
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1answer
107 views

Is there an advantage trading options based on deep in the money Open Interest Volume ratio

Problem: Deep in the money options contracts will be assigned at expiration date. Higher Volume ratio of deep in the money contracts at expiration calls or puts leads to day after expiration date we ...
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0answers
96 views

Exotic option arbitrage

Suppose an exotic European option has a sub hedging (price being lower than the target) portfolio of vanilla European options all with the same expiry as the exotic option. The sub hedging portfolio ...
3
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2answers
179 views

Fitting Function for Skew

I am faced with having to fit skew/smile to option quotes with different strike and same maturity. In order to keep things reasonably simple and to avoid potential artifacts from fitting higher order ...
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1answer
166 views

What is market standard model in equity, FX and interest rates exotics?

Is there any industry consensus about the model to use for pricing exotics in equity, FX and interest rates? I assume that for vanilla options they all use Black model, but how about exotics? Also, ...
3
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0answers
47 views

How to Compute the payoff of Var Swaps, which I have replicated

I used Derman(1999) method, to calculate the fixed Kvar for Variance Swaps using actual option price data. The first Pic Shows the outcome. (ignore the 0s). Now the profit and loss of short var swaps ...
2
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1answer
57 views

is relating bounds to relation between time to maturity and european put option price correct?

J.C. Hull derives the following relation $$Ke^{-rT} - S \le p \le Ke^{-rT}$$ where $p$ is european put option price, $K$ is strike price, $S$ is stock spot price,$r$ rate of interest and $T$ ...
4
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1answer
159 views

Option order imbalance

Currently studying the paper: HU, Jianfeng. Does Option Trading Convey Stock Price Information?. (2014). Journal of Financial Economics. 111, (3), 625-645. Research Collection Lee Kong Chian School ...
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1answer
127 views

Equity Derivatives Question [closed]

I'm preparing to take a test on equity derivatives and have met with some difficulty, so I need some help on the following question: Please analyze the following share purchase plan. Assume client ...
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1answer
101 views

Barrier Option Valuation

Good day, A reverse knock-out barrier call option expires worthless if the asset price ever goes above a given barrier level. Calculate the value of this barrier option struck at $K = 3$ with ...
1
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1answer
109 views

Hedging strategy for American Option

Good day, I was asked to devise a hedging strategy for an American Option given the following claims. Note, $r=0$ and the underlying stock pays a dividend of $1$ at time $t=1.5$ \begin{...
2
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0answers
226 views

Using QuantLib Python to value FX options using stochastic volatility

I would like to use QuantLib (and in particular the python wrapper) to value FX option using the Heston model. Thanks to http://gouthamanbalaraman.com and all of the articles therein : in particular ...
1
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2answers
79 views

Option value with different spot prices [closed]

I found this post online which is plotting different results for option value and greeks depending on spot price. Why would someone want to do calculate the value of the option with different spot ...
5
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2answers
189 views

Estimation of Risk-Neutral Densities Using Positive Convolution Approximation - Python

I'm trying to estimate the risk-neutral density through positive convolution approximation (introduced by Bondarenko 2002: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=375781). I'm currently ...
1
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1answer
2k views

What is the formula for beta weighted delta and gamma?

I am trying to calculate the beta weighted delta and gamma for a portfolio of options of different underlying stocks, but I can't seem to find the correct formula. Can someone point me to it or a ...
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0answers
34 views

Correct beta weighted delta options formula?

Is this the correct formula for beta weighted delta: http://www.nishatrades.com/blog/beta-weighted-delta I've seen this What is the formula for beta weighted delta and gamma? but they seem to be ...
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0answers
39 views

Is there a way to pull SPX index option open interest daily data?

Currently I just use Bloomberg API in Excel for preliminary data analysis and manipulation, and I have one function call that gives me the ticker and IV today ...
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2answers
173 views
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0answers
45 views

What is the true “value” process of American derivatives?

Consider a continuous-time market where LOOP (law of one price) holds. The first fundamental theorem of asset pricing states explicitly that in the absence of arbitrage, the risk-neutral measure ...
2
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1answer
120 views

How to get the probability of exercise call option in Black-Scholes model?

From Black-Scholes model, I'm trying to prove: $p(S_t>K) = N(d_2)$ No luck yet! Can anyone suggest a reference showing that how to obtain this equation? All I get is: $S_t = S_0e^{ (\mu-0.5 \...
2
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1answer
170 views

Intraday option price data European stocks and indices

I am looking for intraday option price data for stocks and indices listed on European markets (SX5E, SMI, DAX, etc). Ideally, I would like to get files as clean as those provided by ivolatility for US ...
7
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1answer
1k views

Backtesting on historical option data

I have downloaded some daily historical option data for a timespan of 10 years and want to perform trading backtests with them. Data are European index options, on ODAX. My question is about realistic ...
8
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0answers
348 views

What is the most convenient data structure for backtesting a model of futures options prices?

I have an empirical model for the dynamics of futures prices in a particular market that I have implemented using a long series of the front five contracts. (I account for the roll in my model.) I ...
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0answers
63 views

Greeks Intraday Characteristics and PnL of options

I am modeling intraday and short term options on Futures.Think Monday, wednesday, friday contracts on these tickers: ES, NQ, CL, ZN, ZF, NG. I am wondering about documentation for Intraday greek ...
2
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1answer
131 views

Binomial Tree Option Pricing Model. Lets talk dividends and futures

I am writing an option pricing model for production use. Its not for arb or anything so it doesn't need to be 100% as accurate as possible. Just good enough for "what happens to my book if we jump 10 ...
3
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1answer
157 views

Dependency of an option price on time till expiry

I am trying to seek satisfaction when it comes to understanding why the price of an option is dependent on the time until expiry. I have read that the longer till expiration, the more time available ...
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2answers
102 views

Naked options selling [closed]

I sold the naked put. The price of underlying went down and broke the support. The situation changed technically from bullish to bearish. The price of underlying is still quite far above the option ...
4
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3answers
226 views

Who trades exchange options in practice (Margrabe's formula)?

I'm currently studying the pricing of the exchange option. https://en.wikipedia.org/wiki/Margrabe%27s_formula While I can appreciate the theory, who actually buys these options in practice? Are ...
2
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1answer
91 views

How to derive and interpret the duration of a call option?

I read here that CFA students are taught that $$ D_{C} = \frac{\Delta_{C} D_{B} B}{C} $$ Where $D$ is the duration, $\Delta_{C}$ is the first derivative of the options price with regards to the ...
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1answer
52 views

European put price when stock price is 0 before maturity

According this answer, https://quant.stackexchange.com/a/39298/29108, the European put price (with maturity $T$) at time $t$ for a stock whose current price is $0$ should be the strike $K$ discounted ...
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0answers
87 views

Is SABR being used in practice for Equity options

Just to be clear: By "in practice" I mean what the banks and other financial companies do. Do financial companies use SABR for pricing equity options? Consider a stock with price $t$ being: $S_t$. ...
1
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1answer
97 views

Equity repo close to money market rates?

I've noticed that the repo rate (here I mean the effective financing rate of the forward position in stock) implied from synthetic forwards is almost the same as money market benchmark (XXXibor 3M) ...
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0answers
42 views

Calculating Risk of Portfolio of Futures/Future Options [closed]

all. I am looking into calculating margin on futures mixed with futures options. Say ES is trading at 2700 currently, I long 100 ES, 600k (Margin/risk). Then i buy 100 2680 puts. so Points Diff (...
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0answers
23 views

Does a shift in prices effect Margin on Futures and their options?

In regards to ES im wondering If theres a scenerio intraday (price shock) that will effect the amount of margin im carrying. Besides PnL Kind of a dumb question, as I guess its just a function of ...
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2answers
222 views

How is volatility different from variance?

I always thought volatility was just variance ^ (1/2). Now I'm reading this book and it's saying that the two are different concepts. Excerpts include: Partly due to its use in Black-Scholes, ...
4
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1answer
114 views

Expected payoff at future time

Let $a$, $b$, $c$, and $e$ be constants, $W_1$ and $W_2$ be Brownian motions with correlation $\rho$, and $f(t)$ and $g(t)$ be deterministic functions of time. Let $X$ satisfy $$d(X(t))=(aX(t)+ef(t)g(...
2
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1answer
3k views

Early exercise of American options

I know this question is considered basic and has been asked millions of times, but I have done my research and there are some points that I just can't understand. For an American call, many ...
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1answer
51 views

Black Scholes modified boundary conditions

Compute the price of the payoff $(2\log(S(T))-K)^+$. Before I do any algebra, I want to make sure I understand. To solve this problem, I need to solve the Black Scholes PDE with boundary condition $C(...
8
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1answer
216 views

Vanilla Option Prices from Local Vol Surface (using neither MC nor PDE)

There are numerous papers that describe the derivation of the Local-Vol equation using available market prices of options. For example: Dupire's formula (see e.g. OpenGamma (2013)) gives us LV in ...
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0answers
76 views

Alternative Method for Determining Option-Implied pdf

As I am refining a pricing model to incorporate skew, and not just ATM volatilities, I need to create random realizations of the underlying consistent with the skew-implied pdf. When searching, one ...
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2answers
76 views

Pricing options with 0 or negative underlying values

I am trying to calculate the value of an option whose underlying is the calendar spread between two months for a commodity (front month Brent vs 2nd month), usually known as a calendar spread option. ...
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0answers
33 views

Volatiliy in a at-the-time call option [duplicate]

I understand that the vega of the Black-Scholes equation is a positive function, which means the value of the option is an INCREASING function of the volatility, since vega is the derivative of the ...
4
votes
1answer
78 views

Barrier Option from binomial tree

What is the smallest information structure that is required for using the binomial tree to calculate the price of a barrier (up-and-in) option? My gut feeling is any node below the node that reaches ...
3
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2answers
116 views

Greeks and options hedging

Why is it that theta is sometimes taken as the proxy for gamma of the underlying asset in options hedging?
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3answers
953 views

Who has introduced the term 'vega' and why?

The sensitivity of the option value $V$ to volatility $\sigma$ (a.k.a. vega) is different from the other greeks. It is a derivative with respect to a parameter and not a variable. To quote from Paul ...
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0answers
63 views

Term structure of the ATM implied volatility of short term weekly options

It's an empirical fact that the implied volatility of short term weekly options are significantly higher than options that expire in a few weeks, and the volatility of the near term options get even ...
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0answers
57 views

replicate option by dynamic hedging

I've just started working for a company with a decent commodity exposure. They manage this by as they call it dynamically hedging it. Basically when they start the hedging they identify a market ...
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0answers
57 views

Bimodal option pricing based on P.D.F

is there any literature on option pricing given the pdf of the underlying asset - e.g. i am interested in seeing how prices for a range of strikes ought to compare based on, say, a simple normal ...
2
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0answers
92 views

Binomial Model Implementation Trouble - American and European options come out equal

I'm Trying to implement the binomial option price model in python and get reasonable performance by using memoization. I checked the output against a black and scholes model and for European options ...
2
votes
2answers
662 views

What is the formula for Intraday and overnight volatility?

I'm a noob trying to calculate IntraDay and Overnight Volatility. For Intraday volatility we can get the annualization factor with the following: Length (hours, Open to Close): 6.5 Time frames per ...