# Questions tagged [payoff]

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### Butterfly spread in Black Scholes model setting

I stumbled upon this question and can’t seem to find a solution to it. I don't see how to calculate the payoff under this instance given that the price appreciates in value. I am new to the study of ...
197 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 ...
124 views

### Black-Scholes market and payoff with integrals

I am struggling with the following exercise: Prove that on Black-Scholes market, with some parameters $r, \mu, \sigma >0$, a payoff X=\int_{0}^{T}\ln \frac{S_t}{S_0}\mathrm{d}t+\frac{1}{\sigma}\...
30 views

### What is a lookback rate put option

I've come across an option called a look-back rate put option. However, the source I got this from did not say what this is. I understand what a look-back put option is, but the rate bit is throwing ...
85 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 $K$ ...
121 views

### What does “first-order effect” mean?

In the textbook Asset Pricing by John Cochrane, on p. 25, it says: "This prediction holds even if the payoff $x$ is highly volatile and investors are highly risk averse. The reason is simple: if you ...
208 views

### What does it mean by “A one period bond is a claim to a unit payoff.” from Cochrane?

In the textbook Asset Pricing by John Cochrane, on p. 19 (corresponding table on p. 18), he claims that A one period bond is of course a claim to a unit payoff." What does he mean by "a unit ...
419 views

### How do we calculate option payoff before expiration?

I am trying to simulate a bull spread option and I have used an online tutorial to calculate payoff at expiry but I am having difficulty simulating the payoff ...
37 views

The "desired position" in the image is a set of slopes $(0,1,-1,0)$, and a set of strike prices between these slopes $\mathbf{K}=(98,100,102)$. The payoff is then designed by finding the positions $... 1answer 101 views ### Discontinuous derivative payoff approximation Consider a derivative of digital type which pays this kind of payoff at time$T: \begin{align*} g(S_T,k) &= \begin{cases} P_0,~S_T>k \\ S_T, ~S_T\leq k \end{cases} \end{... 2answers 85 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 assetS_T$has a payoff function ... 1answer 80 views ### Transform of payoff function$w_c=(\sqrt{y}-K)^+$[closed] I am working on a project where I price EU call options written on the VIX index. The payoff function of interest looks like$w_c=(\sqrt{y}-K)^+$where K is the strike price and y is the value of$...
236 views

I'm looking at different option strategies and the ways that their payoffs differ (and therefore how they can differently be used). I'm looking at the long seagull (buy a call spread and sell a put), ...
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### Explaining an Option product: SIX Discount Certificates

So I have the option with the important info above. I am trying to generate a portfolio that represents the option. However I am stuck on the first hurdle as I believe it is a call option as the ...
30 views

### Transform the payoff to be non-zero

Is there any way to transform the basic call option payoff $V(s,0) = \max(s-K,0)$ such that $g(V(s,0))\neq 0$ $\forall s$, where $g()$ is the transform function of the payoff. This is to use in a ...
725 views

### 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 ...
140 views

### “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 ...