# Questions tagged [payoff]

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### Pricing any Payoff structure using Binomial Tree(Pricing DDTPS)

I just wanted to confirm if its theoretically possible to value any derivative with a payoff that can be replicated by a portfolio of options,underlying and bonds. I wanted to value DDTPS which is a ...
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### How to apply the Spanning Formula (Carr-Madan) on European Call-option?

In the paper Optimal positioning in derivative securities (Carr & Madan, 2000) the so-called "Spanning Formula" for replicating payoffs is presented in section 2.1 as equation (1). It ...
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### How to combine compound calls and puts such as to have a guaranteed fixed payoff at expiration?

Let there be 2 European vanilla options: Call; Put; Both options expire at time T2 > T1 > t=0. We also have 4 additional options available to us: Compound call on call; Compound call on put; ...
1 vote
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### Why is the parity graph in Natenberg shifted up?

In chapter 4 of Natenberg's "Option and Volatility and pricing", he discusses how to draw parity graphs for option positions. These are defined as a plot of the intrinsic value of the ...
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### Swap Fly PnL Payoff Question

Stuck on this payoff question. What is the PnL on 5s10s30s on a swap fly 10k 01, where the fly moves 8 to 26bp? Any ideas would be much appreciated.
1 vote
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### Calculating CDO pay-off

Background I got a model for the distance-to-default of an instution in a system of banks from the paper "An SPDE model for systemic risk with endogeneous contagion". Therein they postulated ...
1 vote
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### Why should a seller of autocall (down out ones) cover gamma risk?

I wonder why sellers of Autocalls should cover the gamma ? The autocall I'm talking about is of this type : While the spot never goes below 70 % of the initial value, nothing happens. If it happens, ...
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### Discontinuous derivative payoff approximation

Consider a derivative of digital type which pays this kind of payoff at time $T$: \begin{align*} g(S_T,k) &= \begin{cases} P_0,~S_T>k \\ S_T, ~S_T\leq k \end{cases} \end{...
212 views

### Construct a portfolio of European call options with a certain payoff function

My question is similar to Replicate a Portfolio with Given Payoff but I am not quite sure how to apply this to my problem. A portfolio of European call options on an asset $S_T$ has a payoff function ...
492 views

### Architecture of a global pricing library with immutable payoffs

By global pricing library I mean a library handling equity, rate etc, hybrid products having several models (BS, LV, SV, LSV) having several numerical methods (analytic formula, MC, PDE FD/FE) I ...
1 vote
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### Swaption Corridor Payoff Diagram

What does the payoff diagram look like for a long payer swaption corridor? For example, suppose that I am looking at a long-payer $1 \times 10$-year swaption with 10Y swaps as the underlying. If I ...
1 vote
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### Finding optimal drift, importance sampling, least square monte carlo

I am working with Importance sampling for Least Squared monte carlo and have now problems understanding the implementation of the Robbins-Monro algorithm for finding the optimal drift for finding ...
1 vote
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### Differentiating a Payoff

Okay this is probably going to be an extremely easy/straightforward question but I thought I should post it here just to double check. Suppose I have a payoff $\Phi = (S_{T}-K)^{+}$. Now let's say I ...
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### "For any random variable $X$, someone will be willing to buy and someone to sell a financial instrument, whose final payoff is $X$."

we will assume that for any random variable $X:\Omega\rightarrow\mathbb{R}$, some investor will be willing to buy and some investor will be willing to sell a 'financial instrument' whose final payoff ...
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### conservative approach payoff table

With the conservative approach, we choose the decision which maximises minimum payoff. I was wondering which decision is chosen if 2 decisions have equal minimum payoff (which is the maximum)? ...
Settings Let you're trading a security whose probability to be equal to $S_{T}$ at time $T$ follows a p.d.f. like the ones in the picture below. (That is just an example found with Google images, ...