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.

Filter by
Sorted by
Tagged with
0
votes
1answer
41 views

How does clearing and settlement work in Europe?

I understand the basic trade lifecycle but I can't find more information on how clearing and settlement works. To my knowledge, if I buy VOD LN executed on LSE - this will be cleared by LCH which is ...
2
votes
1answer
49 views

Intuitive explanation of put option pricing based on put-call parity

Assuming no dividends, the put-call parity equation says: $c + \mathrm{Ke}^\mathrm{-rT} = p + S$ where $c$ is the price of the European call, $p$ is the price of the European put, $S$ is the current ...
1
vote
0answers
50 views

Option that never expires

I have been struggling with the problem below for quite some time now. I really don't know how to approach it. All I could think of is to use the Black-Scholes formula with $T \rightarrow \infty$, ...
0
votes
2answers
91 views

Do basket options have a closed form valuation formula?

Suppose I'm simulating a European call option on a basket consisting of N stocks with slightly varying volatilities but all other parameters remain the same. From the perspective of an estimate, it ...
1
vote
1answer
58 views

Why is the liquidity of ATM stock options often relatively low even if the underlying security is being traded in large quantities

I am currently trying to learn more about options trading and option strategies. One thing I have noticed recently is that for a lof of stocks I look up on yahoo finance often a very low open interest ...
1
vote
0answers
46 views

Early exercise premium with discrete cash dividends using integral approximation

From my understanding, we have to integrate $N(d1(S_x-D,B,t))$ on both asset-price and time-space to derive the Early Exercise Premium $EEP(B,t)$ on each $t$ before the ex-date to get current early ...
0
votes
1answer
224 views

How to show arbitrage when a European option price is greater than the no-arbitrage price?

My example is: Current price = 20, If it goes up it'll be worth 22, if it goes down it will be worth 18 risk free rate: 12%, time = 3 months Strike = 21 call option is worth 0.633 I know that if the ...
4
votes
1answer
76 views

Swaption PnL approximation/attribution

With a payer swaptions delta and gamma is there a method for approximating pnl for a given move in underlying swap rate? (An equivalent to the Taylor expansion for a vanilla call) Thanks!
-2
votes
1answer
93 views

What is volatility trading? [closed]

What is meant by volatility trading? Is it trading 'options'? Aren't options meant to leverage stock prices, and not their volatility?
4
votes
1answer
77 views

Ratio of the same process at different times

Suppose I have an adapted process $X_t$. I have available option prices on $X_t$ for a range of strikes and maturites. In particular, I have $$ C_0(K, T_1) = D(T_1)\mathbb{E}_Q[(X_{T_1} - K)_+], $$ ...
-1
votes
1answer
49 views

Options conversion/reversion arbitrage [closed]

I'm trading bitcoin option and i'm trying to find arbitrage opportunity with a synthetic short/long and a long/short future position. The options are europeans style and settled in BTC. The contracts ...
2
votes
2answers
322 views

Why does implied volatility decrease without a change in stock price?

I was lookin at some stocks and find that implied volatility changes without the stock price moving too much. What are the causes?
0
votes
1answer
42 views

Option trading strategy to test crash risk premium

I would like test if there are "crash risk premia" priced into out-of-the-money puts. My initial thought was to create a portfolio with a short positions in (deep) OTM put options and a long ...
0
votes
1answer
57 views

Option price quantlib

I am lookin at https://github.com/lballabio/QuantLib/blob/master/Examples/EquityOption/EquityOption.cpp . I want plot a graph of the option price for different underlying prices. Other than changing ...
0
votes
1answer
129 views

What kind of option would best be suited for a price based algorithm?

So say I wanted to make money off of a simple RSI-MACD algorithm on SPY (ofc this may not necessarily make money, but let's say it does). I'd like to leverage my returns using call and put options, ...
1
vote
0answers
47 views

Hedge robustness of the one factor Hull White model

I recently came across a quote in a book: "All single factor models share the limitation that shifts in curve levels cause shifts in the package of vanilla options that are a good hedge for the ...
1
vote
1answer
105 views

What is the probability of a lookback option ending in the money (CRR-model)

I would like to compute the probability that a certain lookback option ends in the money, let's say that the option has the following payoff $h_N=\max\left\{0,K-\min\{S_1,...,S_N\}\right\} $ where $K$ ...
0
votes
1answer
38 views

Asian option sensitivity

I am looking for some materials for profiling all options sensitivities for Asian options with both geometric averaging and arithmetic averaging . The underlying price $S_t$ follows a standard GBM. Is ...
1
vote
1answer
53 views

Market Maker option's pricing with reference spot

When a option's market maker receives a quote from a broker, usually the underlying spot prices is locked with a reference. Let's suppose the following example: Broker: "Buy 10k call 2800 of ABC ...
2
votes
0answers
37 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-...
0
votes
1answer
72 views

Why my delta position is increasing with increase in spot?

I am trying to take position in future as per the delta position of short put. My strike is 13794 for short put option, spot 10305.3 and volatility is 20.153 then I am getting 5890 position to buy and ...
-2
votes
0answers
63 views

How Are Option Model Assumptions Justified In Practice

I am reading this article, and I am wondering how comments like there may be a 50/50 chance that the underlying asset price can increase or decrease by 30 percent in one period. are reconciled with ...
0
votes
1answer
48 views

Inflation Indexed Caplet/Floorlet

Can someone explain what is it with $\psi_{i}$ (year fraction in $[T_{i-1},T_{i}]$). The formula in Mercurio (2006) as is follows: $N\psi_{i}P_{n}(t,T_{i})\mathbb{E}_{n}^{T_{i}}\left[\left(\omega\...
0
votes
1answer
34 views

Predict option IV volatility when I have stock price and previous and next day price

If I have data for IV for the previous day the next da and the stock price in intraday format , can i calculate the option price in intrday format?
0
votes
1answer
54 views

Can you simulate an option position at a strike when that does not exist

Is there any way to simulate buy an option at a pric of x when that price is not available to buy ? If x-3 and x+3 exists, how do I buy it at price x?
0
votes
1answer
167 views

Power Options & Forwards on Stock Squared

Short story: the process for Stock price squared is not a martingale when discounted by the money-market numeraire under the risk-neutral measure. How can we then compute derivative prices on $S_t^2$ ...
3
votes
1answer
100 views

Approximate Asian option price under Heston Model

I am looking to see if there is a formula or a derivation at least of an approximation of an Asian (Average Price) option under the heston model of stochastic volatility. Please advise
4
votes
1answer
113 views

Can “Turbo warrants” be priced using the Black & Scholes model?

I am trying to model the pricing of an asset called a "Turbo warrant", which to me looks a lot like a Down-and-Out Barrier option with leverage. When the price of the underlying asset hits a ...
0
votes
0answers
28 views

How to calculate Greeks for leveraged Barrier options?

I am wondering how to calculate option Greeks for Down-and-out barrier Call options with leverage. The option characteristics are as follows. The buyer of the option pays a fraction of the spot price <...
3
votes
0answers
2k views

Black-76 Model for Swaption Price and Greeks

I'm in the early stages of developing a swaption pricing model. Suppose $t_1$ is the tenor of the swap rate in years, $F$ is the forward rate of the underlying swap, $X$ is the strke rate of the ...
3
votes
0answers
90 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}^{...
0
votes
2answers
76 views

Why are these deep in-the-money FLEX options seemingly bought at a discount?

98% of the initial reference value is .98 x 267.88 dollars, which equals 262.52 dollars. However, the market value of each call contract they purchase is 247.42 dollars. How are they purchasing these ...
2
votes
2answers
329 views

Confusion about replicating a call option

Assume standard Black-Scholes model, $$dS(t)=S(t)(rdt+\sigma dW(t))$$ where $\sigma$ is a constant and $W(t)$ is a Brownian motion under the risk neutral measure. A call option is replicable, so if we ...
1
vote
1answer
63 views

Deriving Forward Vol from Straddle and Put Spread

Assuming we have the fair value of the July straddle on a certain strike, what would be the implied July-Oct forward vol if an order comes in to sell the July-Oct Put Spread (on the same strike) for a ...
8
votes
2answers
398 views

What is the industry standard pricing model for CME-traded Eurodollar future (American) options?

The CME-traded Eurodollar futures option is an American option. What is the industry standard pricing model for this product? Does the industry practice to treat CME-traded Eurodollar futures ...
2
votes
1answer
202 views

Where can I get some Inflation Option example quotes (year-on-year and zero-coupon)

I am writing an academic paper on calibration of inflation vanilla options. I need to generate examples for the paper. Is there anywhere I can get example data for the Inflation year-on-year options, ...
1
vote
1answer
90 views

VIX vs S&P: Drift in the hedging residual?

I am looking at the daily returns of the VIX index (dVIX ) and the daily returns of the S&P 500 (dS). I am running a linear regression (using 0 intercept) and get a regression slope of -1.4, i.e. ...
-1
votes
0answers
49 views

How do I achieve a Long Gamma, Short Theta Exposure?

How I understand it is that if I: Sell OTM near dated put which will pay high theta and have low gamma Buy ATM long dated put which will have low theta and have higher gamma However, if there is a ...
8
votes
2answers
9k views

Gamma Pnl vs Vega Pnl

Why does Gamma Pnl have exposure to realised volatility, but Vega Pnl only has exposure to implied volatility? I am confused as to why gamma pnl is affected (more) by IV and why vega pnl isnt affected ...
2
votes
1answer
384 views

Implied Vol skew VS Local Vol skew (as presented by Derman 1995)

I am reading Derman's article/notes regarding local volatilty: http://www.emanuelderman.com/writing/entry/the-local-volatility-surface. I am examining the graph on page 13. The Implied volatility (...
2
votes
1answer
94 views

What is the name (Greek) for sensitivity of an option's Theta to the Time to maturity?

All other second order sensitivities of option prices to underlying price, volatility and time, seem to have a commonly accepted names: Gamma, Vanna, Charm, Vomma/Volga, Veta as documented here (...
1
vote
0answers
46 views

Do barrier options have closed form values for Greeks?

This may be quite simple but I was wondering if barrier options, and more particularly up-and-out European call options have closed form values for the Greeks?
0
votes
0answers
59 views

Summary of Pricing Options of Log-Normal Claims Using Black's Formula

Cross posted from here. Let $B$ be a $Q$-Brownian motion and $X^{s,x}$ given by $$dX_t = X_t(\mu_t dt + \sigma_t dB_t),\quad X_s = x$$ for $\mu, \sigma$ deterministic. Let $\mu_{s,t}=\int_s^t \mu_u du$...
2
votes
1answer
39 views

Far OTM calculation issue on Bjerksund-Stensland

Has anyone come across and fixed calculation issues on boundaries using Bjerksund-Stensland 2002 (Hull, Haug or Rouah implementations) ? Thanks in advance
4
votes
1answer
174 views

Why risk-free interest is needed for Margrabe's Formula?

The source code for Margarble's formula in QuantLib is here. The implementation requires a forward price be computed: ...
4
votes
3answers
329 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 ...
6
votes
1answer
82 views

Should I hedge this spread with a spread option or an insurance product?

My firm generates electricity from wind. Accordingly, most of my generation takes place at night, when prices are low -- and, due to congestion / oversupply, often sharply negative -- so much so that ...
5
votes
2answers
215 views

Higher moments of a straddle

Following the logic of Ben-Meir and Schiff (2012) and this question the first, second, third and fourth raw moments of a put are: Similarity, for a call it is as follows: where and ...
0
votes
1answer
78 views

Why do replicating strategies delta hedge?

We have a simple BS-market of one risky asset $S_{t}$, a bond $B_{t}$ and a digital option $X$ on the risky asset with value process $V(t,S_{t})$. I was able to derive $V(t,S_{t})$ using risk-neutral ...
9
votes
4answers
1k views

Implied Vol Smile: from Calls, Puts or Both?

This might be a simple question, but I couldn't find the answer anywhere: is there a separate Volatility smile (and surface) based on Calls and a separate Volatility smile (surface) based on Puts? Or ...

1
2 3 4 5
34