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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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13 votes
1 answer
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Risk management tools for long term Gamma/Vega sellers subject to margin calls

TL;DR: if you're a retail investor and you systematically sell long-term vertical spreads while staying Delta-neutral, your main risk comes from Vega and the Gamma of opening gaps that can throw you ...
Lisa Ann's user avatar
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10 votes
0 answers
447 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 ...
Drew's user avatar
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10 votes
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option chain data visualization, sunburst

I think option chains are not represented in the best way. With more and more options products coming out and trading on the various exchanges, I see vendors struggling to keep up with a good way to ...
CQM's user avatar
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9 votes
0 answers
248 views

Basket option density in BS model

Let X and Y be two GBM’s, they have each a univariate log-normal distribution for some time t, that is $X_t\sim{LnN(µ_x, σ^2_x)}$, $Y_t\sim{LnN(µ_y, σ^2_y})$ and $Z_t=[X_t,Y_t]\sim{ MvLnN(μ, Σ)}$ ...
KAT's user avatar
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8 votes
1 answer
2k views

Measuring implied move priced into an event

It's well known that options price in an expected move in the underlying going into events, such as earnings announcements. I currently measure this implied move by computing the forward variance ...
user3294195's user avatar
7 votes
0 answers
141 views

Implied vol bounded if and only if instantaneous vol bounded

I'd like to show that in diffusion models IV is bounded iff instantaneous vol is bounded if there is to be no arbitrage. So, assume a model under the pricing measure of the form $$ dS_u = \sigma_u S_u ...
user avatar
7 votes
0 answers
213 views

Has a closed-form formula for the collateral choice option been found?

The collateral choice option problem has been formulated in e.g. Fujii and Takahashi (2011), Piterbarg (2012) or Antonov and Piterbarg (2013), as the computation of an expectation of the following ...
Daneel Olivaw's user avatar
7 votes
0 answers
394 views

Libraries for calculating options strategy-based margin

Hopefully, this is an acceptable question in this forum, even if it isn't analytically focused. As part of an effort to analyse the effect of different option trade structures on a portfolio, I need ...
drobertson's user avatar
  • 1,882
6 votes
0 answers
204 views

Arbitrage free price of a derivative when the price is collected over the lifetime of the derivative

Let $X_t$ be an american style financial derivative with random exercise time $T$ where $t$ and $T$ belongs to some finite set $A$. Buying this derivative requires the buyer to pay $p_t$ up to time $T$...
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6 votes
0 answers
235 views

How companies choose earnings release dates, & effect on Implied Volatility

A company's earnings release date significantly affects weekly or monthly option prices/implied volatility. For companies that typically release earnings on the cusp of monthly options expiration, ...
Ray's user avatar
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6 votes
1 answer
214 views

How are VIX futures being priced when the VIX itself is not being calculated because of circuit breakers

I see that CBOE has halted trading all SPX options, which means the VIX cannot be calculated. Yet VIX futures are still trading and we are very close to the last trade date for the March contract. I ...
Chechy Levas's user avatar
5 votes
0 answers
256 views

Best Method (Or Just a Good Method) of Predicting Intraday Volatility in Real Time?

I apologize if this is a stupid question, I'm a complete neophyte in academic finance but I am trying to learn. I am trying to create an estimate of how likely indexes are to rise/fall by x% by the ...
SSC Fan's user avatar
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5 votes
0 answers
94 views

Conventions and Modeling of CDS Options

I am curious about the current standard conventions and modeling techniques in the CDS options market. I would be glad if someone could elaborate on the following topics: State of the art of index ...
SI7's user avatar
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5 votes
0 answers
100 views

Working with wide bid ask spreads in option pricing model

I'm trying to fit an Heston model to market data. But market is data has some terms (<3M) with quite wide bid-ask spreads (12%-25%). Should I just use mid volatility? Is there maybe a model to pre-...
Oliver Mohr Bonometti's user avatar
5 votes
0 answers
284 views

What put options would the Universa Tail Fund have bought?

According to this Bloomberg article, Universa was up 3,600% in March 2020, by hedging with extremely out-of-the-money puts: https://www.bloomberg.com/news/articles/2020-04-08/taleb-advised-universa-...
Derek Shen's user avatar
5 votes
1 answer
553 views

GARCH(1,1)-M MLE optimization with fmincon in R

I've searched thru dozens of papers and did not find in any of them satisfying and enough theoretical answers to my concerns. So I've combined everything what I found below. Please indicate if my ...
SlavicDoomer's user avatar
5 votes
0 answers
331 views

pricing option with two stocks

Let $\left(S_t^{(1)}\right)_{t\ge0}$ and $\left(S_t^{(2)}\right)_{t\ge0}$ be the price processes of two stocks with dynamics $$ \begin{align} & dS_t^{(1)}=\sigma_{11}S_t^{(1)}dW_t^{(1)} \...
lemontree's user avatar
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5 votes
0 answers
141 views

Risk neutral measure in exponential levy model

Is there a method of finding a risk-neutral measure for assets driven by the levy process? I understand there is the esscher transform but I think it tends to transform the processes into ...
Sharon Reed's user avatar
4 votes
0 answers
225 views

Black-Scholes formula is a (probabilistic) convex combination

A call price is bounded when $\sigma\sqrt{T}$ goes to $0$ and $\infty $ by: $$C_{inf} = e^{-rT}[F-K] \leq C \leq C_{sup}=S $$ Now a simple rearrangement of Black-Scholes formula gives: $$ C = N_1S - ...
bigInner's user avatar
  • 171
4 votes
0 answers
106 views

What's the typical markup on quoted exotics, and what drives this premium?

I'm curious about the typical markup on quoted exotic options as well as what drives this premium. You call up an options desk for a quote, and they'll give you a spread that reflects their market on ...
actinidia's user avatar
  • 196
4 votes
0 answers
200 views

Delta hedging the day before expiry

In practice, how do people usually delta hedge options the day before expiry? Would you still use the black Scholes delta and then close out the position in the underlying immediately after expiry? ...
Volwiz's user avatar
  • 253
4 votes
0 answers
259 views

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 ...
BrownianBread's user avatar
4 votes
0 answers
164 views

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 ...
vonjd's user avatar
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4 votes
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136 views

Pricing of strange Asian lookback option with European-style payoff $\max\{ \max_{u\in[0,T]}S_u-\frac1T\sqrt{\int_0^TS_t^2\mathrm{d}t},0\}$

I am trying to price the Asian lookback option at time $t$ with time-$T$ (European) payoff $\max\{M_T-A_T,0\}$, where $$M_t=\max_{u\in[0,t]}S_u,\quad A_t=\frac1t\sqrt{\int_0^tS_u^2\mathrm{d}u},$$ and $...
user107224's user avatar
4 votes
0 answers
329 views

FX American call option optimal exercise and holding region

Problem I am considering an American call option which gives a domestic investor the right to buy a unit of foreign currency at a strike of $K$ units of domestic currency. I have an exchange rate $S_t$...
user107224's user avatar
4 votes
0 answers
124 views

How is the implied risk neutral density affected when changing numeraire?

For example i would like to price \begin{equation*} E^{Q} \left[ e^{-\int_{0}^{T}r_{s}^{cur}ds} f \left( S_{T_f}^{cur_1} \right) | \mathcal{F}_{0} \right] = B_{cur}(0,T)E^{Q^{cur}_{T}}[ f(S_{T_f}^{...
Kupoc's user avatar
  • 98
4 votes
0 answers
368 views

R: How do i finish the tails in the risk neutral density, obtained from option prices

Im currently working on constructing the risk neutral probability distribution of a stock, based on the option prices. In doing so, i calculate the implied volatilities from the option prices, and ...
Emil Bille's user avatar
4 votes
0 answers
195 views

Is there an arbitrage free option model that treats volatility as a deterministic function of strike?

I am trying to get a good understanding of the different models out there, and thus be able to study hedging errors, and strengths and weaknesses. My understanding of the Local Volatility model in ...
confused's user avatar
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4 votes
0 answers
158 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 ...
ZRH's user avatar
  • 1,671
4 votes
2 answers
872 views

Bachelier Pricing Formula for Interest Rate Binary Options

Similarly to the Black and Scholes formula, I am looking to replicate Bachelier's caplet formula with two digital options: (1) asset-or-nothing (forward rate in this case) and (2) cash-or-nothing. For ...
qbodart's user avatar
  • 141
4 votes
0 answers
126 views

Structured Energy Option Pricing

Let's say I have an option with the following terms. This is for an energy product (ie natural gas) The contract will last for 6 months The payoff is the difference between the first of month index ...
bronson's user avatar
  • 83
4 votes
0 answers
362 views

Higher Order Greeks

In studying options pricing a while back, I had learned of the higher order sensitivities of of Speed and Color. Speed was the rate at which the gamma changes with the underlying. Color is a ...
AlRacoon's user avatar
  • 6,632
4 votes
0 answers
884 views

Rationale behind volatility dispersion (or correlation) trading

When looking at the explanation of CBOE S&P 500 Implied Correlation Indices available here, it is written that such indices: [...] "may be used to provide trading signals for a strategy known as ...
JejeBelfort's user avatar
  • 1,219
4 votes
0 answers
761 views

How to estimate option implied skewness and kurtosis in R

Suppose that i have data that for each day i have more than one option, either put or call. I.E. I have more than 20 put options and 20 call options for each specific day. What is the way to estimate ...
Hercules Apergis's user avatar
4 votes
0 answers
121 views

ODE Solution in Carr's Randomized American Put

In Carr's 1998 paper Randomization and the American Put, he sets up the following ODE for the value of an American put with expiration given by the first jump time of a Poisson process with rate $\...
bcf's user avatar
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4 votes
0 answers
199 views

Match different option high frequency databases

I downloaded the “E-mini S&P 500 (Dollar) Options for 1/10/11” Top-of-Book (BBO) data. If you are interested you may download the data from the following link (approx. 80MB zipped and 1GB unzipped)...
conighion's user avatar
  • 111
4 votes
0 answers
119 views

Are there academic papers on the 'term structure' of adverse selection for futures and options?

By term structure I mean a non-stationarity in the pattern of intraday adverse selection as a given instruments approaches its expiry. Note that I am interested in the adverse selection on the ...
Kevin Webster's user avatar
4 votes
0 answers
488 views

Modeling market sentiment and pricing options by volume, open interest

Are there any empirically-proven methods/formulas for weighting IV surfaces, pricing a discount/premium in an option, and/or adjusting any of the 1st- or 2nd-order Greeks for the magnitude (volume or ...
CB001's user avatar
  • 61
4 votes
0 answers
115 views

Forecasting amount of slippage in executing option spreads

Is there a good quantitative model to estimate how much slippage is required to execute a particular option spread trade? For example, let's say you want to execute an Iron Condor. Given X, Y, Z ...
Liam's user avatar
  • 41
4 votes
0 answers
224 views

How to price an option with two volatilities?

Imagine you have two volatilities, the second which is "activated" when the stock crosses a barrier called $p_b$. The present price is $p_1$. ($p_b>p_1$). This can be used to price options after a ...
myoptionexpr's user avatar
4 votes
0 answers
239 views

What is the longest number of consecutive days that options implied volatility has stayed "extremely high" for any particular underlying?

Curious as to whether or not there is any sort of all time record. Any index, future, or stock will do. Volatility must be well above the average 1 year volatility for all periods.
Ralph Winters's user avatar
4 votes
1 answer
775 views

Correlation sensitivity of Rainbow options

I read from various sources (eg. Exotic Options and Hybrids, M. Bouzoubaa) that the correlation sensitivity of Rainbow options (say a call price on a basket made of 50% of the best stock, 20% of the ...
Alex's user avatar
  • 225
3 votes
1 answer
127 views

Relationship between Open Interest and Implied Volatility

Reference Request for any papers/articles that test the relationship between options open interest and its implied volatility. E.g. I would assume that a high market maker short interest on a strike ...
volquant's user avatar
3 votes
0 answers
170 views

Option-like behaviour of momentum strategy

this may come as rather vague question, since I do not have something very exact issue on my mind. Nevertheless, I think this is an interesting question and must have been thought by some other people ...
blizzard16's user avatar
3 votes
0 answers
115 views

In the paper "By Implication" by Jaeckel, he says that put-call parity should never be used in practic

In this paper by Jackel (2006), on page 2, he writes: The normalised option price $b$ is a positively monotic function in $\sigma \in[0, \infty)$ with the limits $$ h(\theta x) \cdot \theta \cdot\left(...
THATS MY QUANT MY QUANTITATIVE's user avatar
3 votes
0 answers
522 views

Best practices for building an FX volatility surface with Quantlib in Python

Generally my question is: what are best practices for building FX volatility surfaces with Quantlib? In FX options, I would like to price structures such as risk reversals, strangles and butterflies. ...
Wynn's user avatar
  • 105
3 votes
0 answers
78 views

Methods for tracking option open interest intraday

It is my understanding that open interest option values on financial websites are a reflection of a snapshot value each day. Is anyone aware of methods for estimating intraday open interest, or aware ...
skepticalforever's user avatar
3 votes
0 answers
124 views

Methods to estimate Options volume

I need to build a Liquidity Risk report at my intern job. There, I consider an MDTV90 (Median Daily Traded Value for 90 days, a measure of liquidity) for each asset we trade to find how many days we ...
Fróis's user avatar
  • 31
3 votes
0 answers
101 views

Tail Risk Hedging for Public Pension Plan

Very simplistically, ERISA rules require corporate pension plans to use market rates to discount their liabilities. If interest rates go up, the value of their pension liabilities goes down. Since ...
AlRacoon's user avatar
  • 6,632
3 votes
0 answers
154 views

Joint SPX and VIX calibration - volatility surfaces construction

I am currently researching the joint calibration problem of SPX options and VIX options. A question that comes to mind is the construction of each assets respective volatility surface. In the articles ...
Sinbad The Sailor's user avatar

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