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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
30 views

Is the assignment of exercised options “truly” random

Everyone seems to say that assignment of exercised options is random; does it just appear random to an outside viewer or does the exchange pick a name from hat for assignment?
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1answer
63 views

ATMF FX straddle delta

I am trying to price an ATMF FX (say Usdidr) straddle - the fxdelta for call and put leg are quite different with put fxdelta being higher than call delta. (Absolute values) Why would this be the case?...
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1answer
110 views

Buy and Hold P&L for options

I want to calculate the buy and hold P&L for an option in the following "extreme" scenario: Valuation date = t Calculate B&H P&L from t to t+1 Option maturity: t+2 ATM option Due to the ...
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1answer
66 views

Benefits of systematically trading OTC options instead of exchange-traded options

Is there a case to trade liquid OTC options (FX, single-name equity, swaptions, etc.) instead of exchange-traded index options in a systematic strategy?
3
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1answer
135 views

Conditional Probability - Geometric Brownian Motion

Background I am trying to find a way to price a variant of a gap option by using closed-end expressions. What makes this option a bit tricky is that it can be exercised at four predetermined dates (t=...
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2answers
94 views

P&L Calculation of Option Strategy

I have designed a call writing option strategy, where I am rolling the options upon expiry, i.e., my portfolio consists of one short call position at any given time. I have a time series of the value ...
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1answer
76 views

Swing option pricing in QuantLib-Python

Is it possible to use the QuantLib python wrapper to price swing options? I've seen the QuantLib Github repository contains a C++ implementation, swingoption.cpp, but have found no reference to swing ...
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0answers
28 views

Importance sampling procedure

I need someone to explain me the importance sampling method. There are several topics but the drift parameter $\theta$ when adjusting is never discussed. I read publications where $\theta$ was used ...
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0answers
41 views

STOXX 50 - SX5E expiration date

I'm trying to get information about the expiration dates of the SX5E. I'm mainly concern with the month expirations, however I cannot find the rule (or the historical dates) to use in my model. Does ...
3
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1answer
163 views

Option Strategy: Python Implementation Advice

I've been tasked to create and backtest an option strategy. The strategy, in vague terms, is to essentially write call options on securities in a universe, i.e., selling insurance. I have an idea of ...
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1answer
39 views

How skew in vertical put spreads change the payoff?

An spx four strikes wide Put Spread from at the money has a payoff ratio of 1 to 2 meaning if the Premium on the spread is \$10 your reward is \$20; yet the corresponding Call Spread with the same ...
2
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1answer
115 views

4 Leg Synthetic Stock Options Strategy

Traditionally, a synthetic stock option involves buying a call and writing a put at the same strike price. I recently encountered an ETF prospectus that claims to achieve this exposure with a four leg ...
1
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1answer
109 views

How could one trade volatility skew if you think it's too flat or steep?

We all know that you can trade on a forecast of volatility by dynamically hedging, but I'm wondering if there's a similar technique where in you can trade the skew specifically? Let's say you travel ...
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1answer
63 views

option price change

I am trying to match change in European Call option price to greeks using the calculator here e.g. for S=95, K=100, r=0, V=25, t=5 and dividend=0, I get ...
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3answers
229 views

From Butterfly Price to Probability of $S_T$ Falling within a Range

If a butterfly in the limit represents a probability (by the Breeden-Litzenberger result), what can be said about the relative likelihood of a random variable $S_0$ from the price of a vanilla-option ...
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0answers
45 views

Portfolio Analysis for Non-Linear Products

How does one apply modern portfolio theory to optimize the allocation of a portfolio of interest rate derivatives?
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2answers
276 views

Portfolio Analysis Interview Question

Suppose you have a portfolio of 100 options. Then I give you a subset of trades in which you can make. The trades consist of possible buys/sells of different options from different clients. Discuss ...
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2answers
193 views

What is the strategy for this piece of information

Heavy Math background, very light finance background: Suppose I have a stock $S$ whose price is measured by the market once on times $t_0$ $t_1$ $t_2$. Now the market has some opinion for how the ...
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0answers
34 views

Importance sampling weights

I read topics on that subject on this forum but nothing is approaching my problem. Say I'm dealing with a 1Y max put callable with an European Down And In barrier. Say $S_0=100$, barrier $H=80$ and $...
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0answers
46 views

AFV Model Implementation for Convertible Bonds

I am reading the original AFV model paper for pricing convertible bonds. https://cs.uwaterloo.ca/~paforsyt/convert.pdf The paper is very technical and I am having trouble finding the actual PDE's to ...
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0answers
92 views

Compo Feature in Asian Option on Futures

I'm pricing an Asian option on futures using Turnbull–Wakeman (other suggestions welcome) where the average is defined as $A _ { t _ { 1 } , t _ { n } } ^ { A , f } = \frac { 1 } { n } \sum _ { i = 1 }...
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1answer
64 views

VaR for Options portfolio

I'm asked to estimate VaR for Options portfolio. Firstly, I wanna try to estimate VaR for AAPL stock european call option using Historical Simulation but I can't find any Historical Data. I tried ...
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0answers
38 views

Do you receive premium from selling VXTY futures?

I am having some difficulty understanding VXTY futures and how they are priced. The contract specs say it is priced off of OZN options (10yr UST futures options). I understand there is a premium ...
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0answers
62 views

Control Variate Barrier Basket Option

I need to improve the speed of convergence of PRNG Monte Carlo. I'm opening a new thread for that purpose and I have question / need confirmation about the algorithm. I'm pricing options with Heston, ...
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0answers
29 views

Finding the distribution and moments of returns with GARCH models (in R if possible)

I understand the GARCH type models and I know how to fit a model to a time series. But, there is a paper which calculates the moments of the distribution of returns (Variance, Skewness, and Kurtosis) ...
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2answers
189 views

Quasi Monte Carlo

I read several articles regarding quasi Monte Carlo algorithm with Sobol sequences but I still have questions. I implemented MC simulations with an ordinary random generator in matlab. I'd like to ...
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0answers
25 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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1answer
201 views

Option greeks as dollar P&L

If I write the value of an option as O(S, K, T, V), where S is the underlying price, K is the strike, T is the time to expiry and V the implied volatility, how can I compute the dollar amount that I ...
2
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0answers
76 views

Extrapolating implied dividend yield

I have liquid option quotes for 1, 2, 3 and 4y expiries. I was able to imply the continuous dividend yield for all of those. How would you extrapolate such implied yield to 5 and 6y expiries?
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2answers
210 views

Vega of exotic options

I'am wondering if there is a standard definition to the Vega of an exotic product when the underlying model is not Black-Scholes. Let me give some examples : What is the Vega if the price is ...
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0answers
58 views

Pricing callable reverse convertible

Say I'm dealing with a callable reverse convertible, 1Y max with quarterly guaranteed coupons. I understand how to price a reverse, as well as autocalls. However I have a doubt regarding the pricing ...
2
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0answers
84 views

Exotic derivatives - Replication

I would like to replicate the payoff Max(0, Min(S1, K) - S2) with a combination of the following derivatives: -> option on S1, strike of our choice -> option on (S1-S2), strike of our choice -> A ...
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0answers
49 views

Can someone give a simple example of how stochastic volatility leads to volatility skew/smile?

I've been trying to understand skew and volatility, unfortunately I don't have the mathematical background to necessarily dive into some of the papers, I've tried but the mathematics can overtake me. ...
2
votes
1answer
60 views

What does $\int dS \phi (S - K)$ mean in Gatheral's book?

In Gatheral's book on stochastic volatility, he writes the price of an option as $$\int_K^\infty dS \phi (S - K)$$ where $\phi$ is a density. Where does this come from? I have multiple questions: ...
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0answers
32 views

Black 76, finding current forward price and interest rate for a commodity option

Lets say the commodity in question is gas, flowing everyday for a period of time, and my curve data format is "DataEntryDate, FlowingFrom, FlowingTo". To get the forward price should I find the most ...
5
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3answers
785 views

Forward implied volatility

Can one price accurately by only using vanilla options a derivative that is exposed/sensitive mainly to the forward volatility ? If it is impossible in the real world, what do we mean by saying "...
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1answer
36 views

Large Differences in Open Interest between Similar Strikes

Consider the image attached, showing a part of the options chain for the NDX expiring July 20. What can possible explain such large differences in Open Interest across similar strikes, e.g. 818 at 7,...
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1answer
57 views

Options volatility margin

A basic question. When traders structure a product in which they are long an option, how is the volatility surface shifted to take into account a margin ? Is it a multiplicative coefficient, say 95% ...
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0answers
40 views

Calculating daily underlying move from options volatility?

My broker has provided a risk report that shows our options book shocked at various standard deviation moves of the underlying. Their report has the future at $66.64, ATM Vol at 23.74% with 2 days ...
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1answer
52 views

Options Pricing [closed]

I bought Sep and Oct '18 puts on WTI futures strike price 58, two weeks ago. They increased in value on both recent 4% down moves. Today, the price of Oil is roughly flat. Why have the value of my ...
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0answers
29 views

how to derive vol curve for cross rate

For example I can get vol curves for two assets, say XAU/USD and XAG/USD for time T, I can calculate their asset correlation, obtain probability dension functions. Is there a proper way to synthesize ...
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0answers
22 views

How does REG-T apply to non-standard option strategies

I'm trying to estimate the margin impacts from non-standard (e.g. not in the CBOE manual) option strategies. How do the rules apply to things like this: (All European) ...
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0answers
36 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 ...
0
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1answer
74 views

Dynamic hedging pnl when pinning

Dynamic hedging, if successfully implemented, should ensure the dynamic hedge earns the exact opposite of the corresponding option position. However, if we buy an otm option, and the stock goes in ...
4
votes
1answer
96 views

Estimating at-the-money volatility where at-the-money option is absent from the market

I am trying to estimate the intraday ATM volatility in a market where the the strike prices are relatively sparse thus the ATM option may not exist (let's say the closest strike is about 2% away from ...
3
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2answers
302 views

Pricing Corridor Variance Spreads

Recently in the equity derivatives market there have been some trades on what are known as "Corridor Variance Spreads." The large equity derivative dealers and investment banks have been promoting it ...
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2answers
116 views

Can I use implied volatility of stocks to predict the next days or weeks top 10 gainers and losers?

Is it true if I said that the stocks with the highest implied volatility for its options with just one day to expiration today will inadvertently be the stocks with the largest price movements on the ...
1
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1answer
122 views

Is options max pain a useful predictor?

Have there been any academic or industry papers on options max pain? There seems to be a widespread belief (among retail traders) that the underlying price 'gravitates' toward the strike at which the ...
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0answers
73 views

Best Way of Interpreting Black-Scholes Formula [duplicate]

I'm curious to know the best interpretation of the Black-Scholes formula for a European equity call option: $$C(S,t)=S_tN(d_1)-Ke^{-r(T-t)}N(d_2),$$ where $d_1=\frac{1}{\sigma\sqrt{T-t}}\big[\ln(\...
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0answers
46 views

Convert long/short stock portfolio into one sector ETF position

Assuming a portfolio contains long and short positions in stocks that are in the same sector, is it possible to create a similar overall position using only the sector ETF to which the constituents ...