# 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.

2,152 questions
Filter by
Sorted by
Tagged with
149 views

### Delta of FX Options, Different Currency in Trading Book - Trading Interview Question

Having done stochastic analysis in university, together with tons of other math courses, do never prepare you for an actual interview in trading. Stumbled on what I believe might be an easy question, ...
1 vote
180 views

### Monte Carlo: How to interpolate Dupire's Local Volatility

I am trying to price barrier options which can have daily or monthly observations. I first calibrated by Black vols into smooth SVI vols (with linear interpolation along time in variance) to obtain ...
79 views

### Calculate options prices based on given options and spread prices

Suppose you know the following information: Futures price on a stock is 66 70 strike straddle is trading at 27 50-60 put spread is trading at 2.5 50-60-70 put butterfly is trading at 0.2 Assume ...
41 views

### Backtesting Hedged Equity Portfolio with Options

I am trying to find some papers and methodologies on backtesting an Equity portfolio with broad-based index options as hedge. For example, take SPY and systematically hedge it with 9 months 30 delta ...
106 views

### Evaluating swaptions with negative interest rates

Does anyone know if it is possible to evaluate swaptions with negative interest rates with Quantlib? ...
1 vote
40 views

### Is it true that interest rates options with different maturities are free of calendar arbitrage because of the different underlying rates dynamics?

The title says it all - is it true that European style interest rates options (lets say on LIBOR 3M for the sake of simplicity) with different maturities are free of calendar arbitrage because ...
106 views

### Black Scholes derivation: Why treat Delta as a constant?

In the derivation of the Black-Scholes equation, it is argued (e.g. in the original paper and in Hull) that $$dV(S_t, t)=(…)dt + \frac{\partial V}{\partial S} dS_t,$$ where $V(S_t, t)$ is the value at ...
39 views

### What is the TBA Option price convention and delta

I am wondering about price and delta about TBA options Use this trade example: One sell \$100 million ATM forward calls on 6.5% Fannie Maes for 24 ticks, and buy \$50 million ATM forward calls on ten-...
112 views

### Purpose of Vega Hedging

I am trying to understand the principle of vega hedging. When should a market maker vega hedge his position ? Let's suppose that a market maker delta and gamma hedge himself, and carries his position (...
104 views

### Optimize call option purchase

If it is predicted that the price of a stock will increase from P1 to between P2 and P3 in time T (assume the distribution of the price will be evenly distributed between the range of [P2, P3] at time ...
1 vote
199 views

### Distribution of total delta of option portfolio

We know the delta of a portfolio of options is simply the sum of deltas of the individual options. But are there any additional known properties about the total delta (or other greeks) of a portfolio ...
43 views

### Difference between number of stocks and number of bonds: Predictable vs adapted

Let $\nu_k$ and $\eta_k$ denote the number of stocks and number of bonds in the portfolio. According to Schweizer, we need $\nu_k$ to be predictable and $\eta_k$ to be adapted. In the text, the ...
176 views

### No-arbitrage conditions on a caps/floors volatility surface

Suppose that one has a caps/floors volatility surface and wants to check whether this surface admits arbitrage. What is the theoretical and practical way to do it? Lets talk only about caps for ...
43 views

### Difference between Risk minimization and local risk minimization

According to the survey paper "A Guided Tour through Quadratic Hedging Approaches" by Schweizer the risk function is defined by $$R_t(\phi)=E[(C_T(\phi)-C_t(\phi))^2|\mathcal{F}_t]$$ When ...
148 views

### Why can’t delta’s be used to price double no touch options?

Here is the link to a MATLAB one touch option pricing calculator I used:OT I tried several inputs and I noticed that the one touch option price is approximately twice the delta of an equivalent ...
189 views

### Find the value of put option using a two-period binomial model

I've been asked to find the price of a two-month European Put Option with strike price $£40$. The price at $S_0=£30$, this can move up to $£40$ or down to $£25$ ($1/3$ chance to go up, $2/3$ chance to ...
36 views

### Power options for pricing European claims

I have the following question: Why would somebody be interested in the expression $E[S^\theta]$ for $\theta$ between zero and one. The only thing I know is that this then can be somehow used to ...
1 vote
126 views

### Approximating Volatility Skew From historic returns? [closed]

I was wondering if someone could help me with something. I've been reading more about equity options, and I'm struggling with skew. Conceptually I understand why it exists, what I'm struggling with is ...
53 views

1 vote
97 views

### CDS Option Pricing (Missing Index Factor)

I've read the OpenGamma paper https://quant.opengamma.io/CDS-Options-OpenGamma.pdf on CDS Options, and noticed a small discrepancy. So I wanted to double-check my understanding. In Section 6.4 the ...
219 views

### Can gamma of an option be greater than its delta?

I have a currency pair usdinr put option with strike price at 73.5 INR, risk free rate 0, underlying price of 75.4025, days to expiry is 15 and iv is 5.9%. Delta of this option is -0.019 and gamma is ...
78 views

1 vote
53 views

### Selling American calls before ex date vs. exercising

From reading Hull OFOD (among other references), I understand that early exercise makes sense for an American call option at time $t_n$ when $$D_n > K\Big[1-e^{-r\big(T-t_n\big)}\Big]$$ for a call ...
248 views

### Deriving Bachelier Greeks

I am working on the Bachelier Model with r not equal to 0 as described in the first and most upvoted answer in following link: Bachelier model call option pricing formula This is fairly easy to code ...
102 views

### is implied volatility derived from the option bid quote or the option ask quote?

I got SPX option prices from three different market data sources. In all of them, I can see bid and ask quotes. However, there is only one implied volatility. Does this implied volatility correspond ...
1 vote
231 views

### What is the intuition behind a positive theta for European long puts?

I've googled extensively for an answer to this question. Very similar (if not identical) questions have popped up in this same website (example) but I never find the answers to be clear and/or precise....
32 views

### N-period state price deflators

Given that the non-dividend paying share is at \$5. In each 6 future 6 month period its value can either rise by 25% or fall by 10%. The continuously compounded risk free rate is 5% p.a. Consider a ...
144 views

### Confusion Regarding Dynamically Delta Hedging a Short Option

To my understanding, market makers (mm) in the options market dynamically delta-hedge their portfolios by buying/shorting the underlying, thus eliminating directional risk and profiting from providing ...
189 views

### Data source for FX options

I have daily quotes for the new york and london fixings of fx options on EURUSD. I can choose between two sources: BGN and CMPN. Apparently these are based on slightly different methods of aggregating ...
153 views

### FX option quotation in interbank market

I am looking at the different ways in which FX options (say EUR/USD option) are quoted in interbank markets. Is it quoted using the option chain? I also saw a piece where it is said that it is quoted ...
59 views

### Is there an analogous strikeFromDelta implementation for 1st gen barrier options?

I have a simple replication pricing implementation for 1st gen exotics (digitals, single and double barriers, etc.). In order to effectively test strategies I want to price "like" strikes ...
167 views

### What is the probability of touching point A first?

The probability of a stock touching a point A which is below the current spot price is 35%, and the probability of the stock touching a point B which is above the current spot price is 20%. How can I ... 