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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84 views

Why does black scholes model give lower prices for puts with further time to expiry?

Consider BS-model with parameters: Stock = 100, Strike = 100, Texp = 1 year, Vol = 13%, Rf Rate = 3%. For these parameters the BS put price is 3.76. Then consider the same parameters but with Texp = ...
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52 views

Volatility input for American options

I have to price an american option on a daily basis and I have some questions regarding the CRR binomial tree model: Is it correct to use implied volatility as an input? Or is it better to use ...
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81 views

Heston model on currency

We could have the formula for Heston model for currency as (under the Risk-neutral measure for $r_d$) - $dS_t = \left( r_d - r_f ...
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90 views

Reason to hedge a European call option

Assume I write a call option on one share of the stock that I have. After selling the option I have an obligation to sell one share of the stock at some future time. I already have the stock, why ...
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210 views

Why do some principal-protected notes reset the gains to zero?

I was looking through the principal-protected notes issued by Lehman Brothers. One of them was the "100% Principal Protection Absolute Return Barrier Notes Linked to the S&P 500 Index". The ...
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1answer
210 views

VXX Put pricing

Last week at Friday's close, the Dec 14 37.5 Put options were selling for \$.68 with VXX at \$40.29. This week at Friday's close, the Dec 21 37.5 Put options were selling for \$.38 with VXX at \$40.50....
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28 views

Deterministic optimal call time

Consider a American Option on a linear payoff i.e., if called at time $T$, it pays off $S(T)$, the stock price. Is the optimal call time of such an option determinsitc? Is there an intuition to the ...
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602 views

How to price Swaptions with short rate models?

I have specified a (Lognormal) short-rate model (non-affine) under the Risk-Neutral measure $Q$ as a shifted exponential vasicek: $ r(t) = e^{y(t)} + \phi(t)\\ \text{with} \quad dy(t) = \kappa(\...
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52 views

Option symbology with reuters DSWS

I am trying to systematically extract option data at a certain date based on the underlying. Input: interchangeably ISIN/RIC/Mnemonic Output: list of underlying symbols, preferably mnemonics. I am ...
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3answers
100 views

Leveraged ETF pair trade, where's the gamma/convexity?

I'm trying to better understand leveraged etfs, and specifically how they have convexity and volatility decay similar to options. An older post on this site asked a similar question and one of the ...
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50 views

Why are FX options vols quoted in 25RR and 25BF terms instead of by strike like credit options?

Credit options follow a quoting convention for the vols based on strike, which fits in neatly with the Black-Scholes framework. So why are FX options vols quoted in terms of 25-delta Risk Reversals ...
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1answer
67 views

Put call ratio has no meaning confusion

I just can't wrap my head around why the put-call ratio makes sense. Whenever there is a put buyer, there is a put seller, same goes for a call buyer/call seller. In other words, if there are a lot of ...
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47 views

Equivalent of LEAP options further into future

If I wanted to buy LEAP options for a particular NYSE stock, however they only issue contracts that expire a maximum of 2 years in the future, are there are other alternative securities/contracts that ...
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14 views

Where can I find the release dates for new options with respect to a specific stock?

For example: Let's say I'm looking for the release dates for options for TM.NYSE, where can I find out when an option with an expiration date later than the currently available (Apr 21) will be ...
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123 views

Calculating implied volatility index

What are common methods to compute implied volatility index? One could use VIX method on other underlying. It is also easy to limit the method to 4 atm strikes. Is this a good idea though? What are ...
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63 views

Is there some sort of index of products, their description, and pricing?

I'm imagining some sort of site where you can look up all sorts of products that are traded (swaps, bonds, options, and all the variations that they exist in), and then the site gives an extremely ...
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166 views

How many options would be required to dynamically replicate the VIX nowadays?

The VIX is a portfolio of OTM options on the SPX with non-zero quotes. From CBOE white-paper: Only SPX options quoted with non-zero bid prices are used in the VIX Index calculation. [...] As ...
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87 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 ...
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1answer
120 views

Greeks: Estimate gamma by Monte Carlo finite difference

When I was using Monte Carlo to calculate the gamma of a vanilla call option by finite difference method, I stuck in this weird situation as below. Consider this, $$ Gamma = \frac{CallPrice(S^{up}_{T})...
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6k views

Carr-Madan Formula

Really new to financial Maths. I am currently having problems with the Carr-Madan Formula. $$f(S_T)=f(F_t) + f'(F_t) (S_T - F_t) + \int_0^{F_t} f''(K) (K-S_T)^+ \ d K + \int_{F_t}^{\infty} f''(K)...
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105 views

Calibrating Heston model parameters using the Active-set method and Levenberg–Marquardt

Background: We're estimating the parameters of the Heston model from current market data of options. This is to be implemented using the active-set method (see section 16.5 here) and the Levenberg-...
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4answers
306 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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1answer
55 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?
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Create a video in Matlab [closed]

I'm studying these codes from Mathworks https://www.mathworks.com/help/finance/plotting-sensitivities-of-an-option.html The output is a 3D image. Is it possible to get a video that shows the creation ...
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26 views

Cancellable Observation period in a Trade

How do you model a trade with a provision to cancel/unwind an observation period with mutual agreement before this observation period (and for a cancellation fee)? This is unlike a cancellable swap ...
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2answers
108 views

Ito's lemma and Lognormal Property

What would be the difference between: \begin{align} dS = udt + \sigma dz \end{align} and \begin{align} dS=u*S*dt + \sigma*S*dzdS \end{align} Is that the former is in absolute terms and the latter is ...
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441 views

Least Squares Monte Carlo

Could you explain to me in words (no formulas) the concept of the Least Squares Monte Carlo method to price an American style option?
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142 views

Easiest possible way to backtest a semi dynamic options strategy

I have a few options strategies Id like to backtest and I have some familiarity with Python. In particular Id like to backtest a "semi-dynamic" long vol. strategy putting on $0$ cost ...
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47 views

Deriving American option greeks

I am using integral representation of option value instead of trees, so I imagine to derive greeks we have to integrate across time for the boundary to get the EEP (Early Exercise Premium) component ...
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484 views

Difference between a warrant and an option?

What is the difference between a warrant and an option on a stock? Apparently both represent the same right to receive a share of stock at the strike.
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24 views

What are the components of VXN?

What are the exact components of VXN -- the volatility index for NASDAQ-100? The CBOE page links to the document for VIX, which clarifies the exact set of front-month near-the-money SPX options used ...
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45 views

Managing/Hedging strangle with futures at strike prices

Since I am very new to options, I thought would be great to ask the opinions of the experts in this group. Please note that I will hold strangles till expiration. The goal is to sell strangles (OTM ...
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53 views

In Short/Bull Put Spreads, why not sell a put at A and buy a put at B? [closed]

In Short Put Spreads, why buy an A put, and sell a B put? If $A < p < B$, you can be assigned to your B put, while your A put is worthless. Kevin Ott diagrams this below, but I added A, B. ...
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98 views

Does anyone have any suggestions on using Monte Carlo simulations to calculate Greeks of basket option?

I'd ideally like to use algorithmic differentiation or finite difference methods to approximate the Greeks of a basket option. It would be a European style basket on $N$ stocks with the payoff being $\...
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2answers
181 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 ...
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1answer
32 views

In Short/Bear Call Spreads, why not buy a call at A and sell a call at B? [closed]

In Short Call Spreads, why sell an A call, and buy a B call? If $A < p < B$, you can be assigned to your A call, while your B call is worthless. Kevin Ott diagrams this below, but I added A, B. ...
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52 views

In a Diagonal Spread with Puts, aren't you bearish in the back month?

Predicate that you think TSLA is over-priced at $2045, so you buy a Sep 16 2022 \$300 ($= A$) put. but don't think TSLA will crash to \$400 ( $= B$) in a week, so you sell a 7DTE (Aug 28 2020) \$400 ...
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22 views

Value in time of the bond in delta-hedging

I am trying to implement a simple delta-hedging strategy. The idea is that I want to verify that the covered position "1 option long + delta stocks short" is actually evolving as $e^{rt}$, ...
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35 views

Estimating dividend yield & risk-free rate from Futures prices

I would like to work with the dividend-adjusted Black Scholes formula and need to estimate the dividend yield and risk-free rate. I know that I could compute both rates exogenously. But I am working ...
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455 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 (...
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81 views

Option implied data from CME

I am trying to extract the risk free rate and volatility from the traded American options with expiry Nov-2020 from CME. https://www.cmegroup.com/trading/metals/...
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53 views

How to price option on a new underlying?

Here is a question i had for a long time but i never asked. Let's take an easy example, AirBnb will likely have an IPO soon, the stock will be quoted on the market. Let's say i would like to price an ...
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35 views

Using EOINA, €STR for option valuation

for an assignment I have to value options using an OIS rate using the Black-Scholes model. Since my options are traded in Germany I was looking at the EONIA or newly €STR. (Since Hull 2012 recommends ...
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1answer
34 views

Calibration data selection - basic rules

Hey I found following rules for selecting data for calibration (source: "Kou Jump Diffusion Model: An Application to the Standard and Poor 500, Nasdaq 100 and Russell 2000 Index Options" by ...
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1answer
70 views

Option proofing: Analytical solution for option math

How do I prove the following equation: P(X=100)≤(P(X=110)-P(X=90))/2 I am not sure how to start and whether it involves using the Black-Sholes formula or not (something like this: https://www.youtube....
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137 views

Why are there so many S&P 500 call options selling with strike @1000?

I am analysing option-implied RNDs and risk preferences for my masters thesis, so forgive me if I sound like a beginner in derivatives. I use WRDS to download my historic options data. I am looking at ...
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95 views

Why is the liquidity of ATM options often relatively low even though the underlying security is being traded in large quantity?

I am trying to learn more about options trading and option strategies. One thing that I have noticed is that for a lot of large cap stocks such as KO and UPS, very often there is a very low open ...
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110 views

What is volatility trading? [closed]

I have heard that there are ways that one can trade volatility with options. What option strategies can be used to do so? Are the other ways to trade volatility besides with options? If so, what ...
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1answer
79 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 ...
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1answer
54 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

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