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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42 views

Floor option EVE risk: Sum of key rate shocks risks vs. the rates parallel shock risk

Consider a model measuring the EVE risk (change in the economic value by shocking the rates; PV01) of a portfolio of vanilla interest rate floor options. Is there any reason for the EVE risk of a ...
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121 views

When to expect profitability of a call options buying strategy

When could we expect consistent profitability of a call options buying strategy given specific statistical assumptions about X% chance of a stock price moving up by Y% within 1-5 days (or Z number of ...
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159 views

R/fOptions Binomial Options Pricing warning message

Trying to compute theoretical prices for a set of options using the R package fOptions: ...
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162 views

Pricing Asian option at discrete times

I hope you can help me again regarding pricing an arithmetic Asian option. Asumme we have a time grid $(0=t_0,t_1,t_2=T)$ and we buy an Asian option at time 0 and the maturity is at T. Now we would ...
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124 views

commodity futures options data

I am trying to get my hands on some historical commodity futures options data for about 35 commodity futures. So far in my search the only way I can get the data seems to be through the Commodity ...
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148 views

Why is shorting (oil) futures a bit of a negative gamma trade?

From this article, http://www.zerohedge.com/news/2017-01-22/oil-speculators-have-never-been-long, "I get what you're saying about the price risk which is always the danger of shorting crude oil it's ...
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53 views

How to find the ideal options trade given certain return distribution?

Suppose I have a probability distribution for the return of a given stock from now until some expiration date. Is there any algorithm/process/software that will take that probability distribution and ...
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220 views

How to calculate the volatility of a equity option spread

I would like to calculate the volatility of an equity option spread with all legs having the same expiration. Reading Option Volatility and Pricing 2nd Edition by Natenberg, Chapter 20, section ...
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246 views

Backtesting with option

More of a general question: is there anything there like a software to have any meaningful backtesting done on US equities with options in portfolios. Looking more of an off shelf product or open ...
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47 views

How to reduce data dependence for empirically assessing option pricing model performance?

I am preparing a paper about mitigating assessment failures for option pricing models. For the sake of simpliciy, suppose we are talkin about European options. In basic terms, what I would like to say ...
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252 views

Pricing Exotic options

I am stuck at a assignment problem where I have to compute the price of an exotic option. I am given the values the prices of option $C(X;k) = E[max(0,X_T - k)]$ for different strike prices $k$ and ...
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4answers
283 views

How to calculate return on investment for an adjustment to a complex options position?

Say I currently hold a set of options positions with the same symbol/expiry that collectively have a net present value based on the estimated value at expiration of +10. I could also liquidate the ...
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70 views

How can I drive FPDE of American Option Price from FMLS Model?

Under the risk neutral measure $\mathbb{Q}$. The FMLS model assumes that the log value of the underlying i.e., $\bar{x}_t=\ln S_t$. with dividend yield $D$ follows a stochastic differential equation ...
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118 views

Can someone try this Boundary Condition for the Black-Scholes PDE out for me?

I have a bit of a favor to ask and if anyone could help me out with this I'd really appreciate it. At the moment I'm trying to use the triangle wave formula as the payoff for the Black-Scholes PDE i.e....
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127 views

How can we observe volatility smile from the market. Drawbacks of Heston Stochastic Volatility Model

Here are two questions related to implied volatilities. a) The set up here is for an European option. We can get its implied volatility smile from calibration, the question is why could we also ...
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114 views

Is it possible to place hidden order inside spread when trading E-mini S&P 500?

My question is not about hidden orders in general. In equity market a trader can post his hidden order inside spread, is it the same way for E-mini S&P 500?
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52 views

Pricing with-profit/smoothed bonus annuity using Black-Scholes

Would this be possible? Subsequently, would the pricing of such an annuity be somewhat similar to pricing a lookback option?
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16 views

EMTA Guidelines

Does EMTA guidelines are only for Non-Deliverable trades? IF yes, then why this is applicable for Deliverable Option trades? EMTA Site - http://www.emta.org/ndftt.aspx
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55 views

Effect of surprise dividends on options

The ETF in question is VDC It pays about $2.5 a year in dividends, but the payout dates are very erratic If I were to go long VDC with options, what would be the best way of doing this to avoid ...
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80 views

Delta of an option in two cases

Let C be the prime of a call in fi=unction of the price in term F, Strike K, volatilité $\sigma$ and maturity t: $C(F,K,\sigma,t,r) $ We assume that we know $\delta$ $\delta=\frac{\partial}{\...
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74 views

How was this probability of negative U.S rates by end 2017 calculated?

http://www.bloomberg.com/news/articles/2016-01-26/bets-on-negative-u-s-rates-by-end-2017-jump-above-10-chance Options markets show some investors are taking out protection in case rates instead ...
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234 views

Computation of option vega under CEV

It is easy to define the option vega $\nu=\frac{\partial C}{\partial \sigma}$ under Black Scholes model since volatility is a single quantity. However, under CEV or local volaility model, it is ...
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99 views

Cointegration and variance of time series

Given that $X_t , Y_t$ are two cointegrated random processes, what can we say about the relationship between variance of the two increments $var(X_{t+h}-X_t)$ , $var(Y_{t+h}-Y_t)$ for a given $h>0$...
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174 views

Black Scholes Model Replicating Strategy Delta Hedged Exam Question

A share is currently priced at 640p. A writer of 100,000 units of a one year European put option with an exercise price of 630p has delta-hedged the option with a portfolio which holds cash and is ...
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116 views

Calculate minimum IV increase to offset theta

How would one calculate the minimum implied volatility increase necessary to offset theta decay? IV is typically a percentage, while theta is a dollar value. In theory I think I could look at what ...
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93 views

Hedge volatility decreases

My particular options positions are typically a long delta, and long vega. Decreases in implied volatility, or specifically the VIX, can drastically alter the profitability of my position. Is there a ...
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130 views

Straddle neutral strategy

What does it mean to implement a delta-neutral strategy for straddle ? A straddle consists in buying a call and a put simultaneously, at the same date, on same underlying, with same maturity and ...
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83 views

Opposite of hard to borrow?

If market participants are certain a stock will suffer a huge decline, the shares will become hard to borrow and an interest fee will be applied to borrow the stock. This interest fee eliminates the ...
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1k views

where to find historical option prices?

I have a dataset of options (traded in European exchanges such as NYSE Euronext) and I would like to find their price history. Where to find it? I see that ...
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341 views

Adjusting for variance bias when using overlapping data

I'm in the process of constructing volatility cones for several assets and I want to make sure the data is free of biases. I know that using overlapping data introduces an artificial degree of ...
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212 views

How to price an option with a “step up” feature using binomial tree?

I have a call option with expiry in two years. In my case the option is bermudan style with first 9 months w/o ability to exercise (i.e. European) and after exercise at any time (i.e. American), but I ...
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354 views

Mock/practice trading for options (delta/gamma hedging etc.)

I know there are some sites for practicing equity investing. But could you provide me with suggestions concerning options trading etc. I read Natenbergs book on Options and want to test things like ...
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94 views

Adjusted option prices?

I am trying to calculate IV of options for a ticker over the last 10 years. Problem is that some option prices don't make sense (for example, closing price \$31.94, but 30-day call option with 18 days ...
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1answer
72 views

American Put Option Pricing

I am trying to solve a question of American Put Option pricing as below. Build a 15-period binomial model whose parameters should be calibrated to a Black-Scholes geometric Brownian motion model with:...
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1answer
72 views

Filter options used in the construction of implied volatility surface

Currently trying to model the IV Surface using the APPL options, to compare how different models of the underlying move the IV Surface. However, after getting the data, I've seen that some option ...
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1answer
190 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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1answer
675 views

Volatility Smile Approximation

Does anyone know what type of model is used to model the skew and IVs inside Thinkorswim platform for its volatility smile approximation? I am trying to replicate but do not know where to start. Any ...
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1answer
92 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 ...
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44 views

Strictly increasing asset price under a risk-neutral probability measure?

I am reading a paper on option pricing under jump processes in continuous time. There is a section labeled examples where the authors work under a risk neutral probability measure and derive option ...
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35 views

Option arbitrage on two correlated or cointegrated underlying assets

If two indices are highly cointegrated, does it allow for some set of statistical arbitrage strategies for european options for which those indices are single underlyings ? Does answer change if ...
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35 views

Is my derivation of Black-Scholes equation correct or am I missing something (eg assumption)?

Question: The following is my derivation of the Black-Scholes equation. Is it correct or am I missing some details (eg assumption)? Let $V$ be value of an option. Suppose value $\Pi$ of a portfolio ...
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Applications of a calibrated price or IV surface and other basic questions

Newbie here with basic questions. I have researched the topic online, but am still at a loss. I went through a nice course on calibration, saw how to apply stochastic short rate, stochastic vol, jump ...
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American Option - Early exercise risk management

This is for American Option Book Management in real trading. Let`s suppose, American Option seller(Book manager) only do delta hedging, which means seller cannot do Vega hedging, American Option ...
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Is it possible to price a double barrier option which one barrier is monitored continuously while another barrier discretely without using MCS?

I am thinking about pricing a down-and-in and up-and-out double barrier put option under Black-Scholes assumption. The upper barrier is monitored continuously and the lower barrier is monitored ...
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37 views

Numerical Solutions to PDEs with Financial Applications

I am reading a paper by Richard White, Opengamma named Numerical Solutions to PDEs with Financial Applications. There is an implementation codes as stated in paper hosted at https://opengamma.com/...
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Negative drift when calibrating GBM parameters

Setup for question: Consider a basket of $N$ stocks $\{S^1, S^2, \dots, S^N\}$. For fixed strike $K$, each stock in the basket, $S^i$, follows the SDE $$dS_t^i = \mu^i(t) S_t^i dt + \sigma^i(K, t) ...
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Volatility Skew fitting in R; Calculate option delta using various volatility dynamics

Given a fixed maturity option chain, i was wondering if there is any way to evaluation an option against this volatility surface and compute the various delta of the options wrt to volatility dynamics ...
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1answer
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In literature, is IV constantly adjusted during option delta hedging?

In a lot of literature, they like to compare the performance of buying an option, and then delta hedging either at that options implied volatility (IV) or the true future volatility. This is under ...
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EMTN with two barrier options and pricing by Monte Carlo method

I analyzing an EMTN (Euro Medium Term Note) for my Master's degree thesis, which uses 2 barrier options: a Down and In put, an Up and In put However, I only know how to do it for Knock-out options. ...
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35 views

Varswap replication product

I would like to ask about a product that some Flow desks sell : Varswap replication strategies. I know that it consists of weighted basket of calls and puts , however I would like to know how does it ...