Questions tagged [pricing]
The pricing tag has no usage guidance.
264
questions
1
vote
1answer
87 views
Monte Carlo simulation for OTM options under stochastic volatility
I'm looking to simulate the stochastic price and volatility process (Heston model) using some form of Euler method for Monte Carlo approximation of option prices. The results that I get are acceptable ...
2
votes
0answers
81 views
Valuation of Corridor Variance Swaps
Given that the payout of the Corridor Variance Swap (CVS) is $V \left(\frac{\sum_{n=0}^{N}I}{T_2 - T_0} (\sigma^2 - K^2) \right)$, where $\sigma^2$ is the realized variance within the pre-specified ...
1
vote
0answers
24 views
Appropriateness of the Bloomberg CLO Cashflow Generator
Since CLOs seem to gain in popularity because of the COVID-19 crisis, I came across the possibility in Bloomberg to generate cashflows for newly issued CLOs through the function "weighted average ...
0
votes
0answers
6 views
Per-user pricing / overlapping pricing
I am releasing some educational software that can track student progress. I am having trouble coming up with a good pricing scheme.
I do not want it to be too cheap for single users as there is a lot ...
1
vote
1answer
48 views
How to construct a GBP FVA curve from a USD FVA curve
Our business funds itself in 2 currencies, USD and ZAR. As a consequence we have a USD funding curve. I need to price a GBPZAR cross-currency swap (XIRS) against a counterparty with which we have no ...
0
votes
0answers
47 views
Price of a double barrier knock-in option
According the paper of Hui (1996) - One-touch double barrier binary option values the price of a knock-out double barrier option is:
This option pays out a predefined cash amount if
the lower or ...
2
votes
1answer
78 views
No-arbitrage Pricing
We have a contract whose value is $A(S_t,t) = S_t^3$ at all times, not just at expiration. $S_t$, the underlying stock, follows a Geometric Brownian Motion, $\frac{dS}{S} = \mu dt + \sigma dB$. How ...
1
vote
1answer
124 views
If I have the present value of an amortizing bond's cashflows, how do I figure out price?
Say that I correctly compute the sum of cash flows of a given bond. How does this relate to the quoted price that most people understand? IE, based on the sum of cashflows I derive a PV of 5,000,000 ...
2
votes
1answer
97 views
Autocall pricing: what does “Lipschitz continuous parameterization” mean?
I've been reading through this research paper (A Monte Carlo Pricing Algorithm For Autocallables That Allows for Stable Differentiation by T. Alm, B. Harrach, D. Harrach, M. Keller) about a method for ...
1
vote
4answers
212 views
What book(s) would you recommend for structuring and pricing Exotic Products?
I've been looking for good books on structuring equity derivatives (Principal Protected Notes, Autocalls, Lookbacks, Reverse Convertibles etc). I only found ones that discuss mainly the theoretical ...
2
votes
0answers
40 views
Pricing of autocallable structured product
I'm looking at this paper: https://doi.org/10.1057/jdhf.2011.25, which is on pricing autocallable structured product. The author uses the Black-Scholes equation to describe the product's dynamic value,...
1
vote
0answers
78 views
Can arbitrage arguments be rearranged to avoid selling? (Hull, Chapter 5)
Suppose forward contracts are traded on a consumption asset, so there aren't necessarily people ready and willing to sell the asset to jump on an arbitrage opportunity. Suppose the asset has no yield, ...
0
votes
1answer
47 views
I have missing data on my portfolio weightings but it can be solved through stock prices - how can I code to find this? [closed]
firstly I would like to say sorry for the title - its not the best. In fact its crap.
Here is my problem (I am new to coding btw - still learning)
I am using Python on my MacBook - using Terminal.
I ...
3
votes
1answer
108 views
Why are some metals in contango (inverted) forward curve and some in backwardation (normal) forward curve?
I am scrolling through the various metals on lme.com and some are in contango and some in backwardation. For example:
Copper: backwardation
Aluminium: contango
Further examination of other metals ...
2
votes
0answers
58 views
Stocks with same volatility but different drifts
In the book Quant Job Interview Questions & Answers, in section 2, question 2.4 says suppose two assets in a Black-Scholes world have the same volatility but different drifts. How will the price ...
2
votes
0answers
74 views
Linear factor representation Pricing kernel APT
following Cochrane (2005) and other insights, we know that under Arbitrage Pricing Theory (Ross, 1976), if investors believe returns follow a linear multifactor structure of the form
$x^i=r^f+\sum_{j=...
1
vote
1answer
72 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 ...
1
vote
1answer
83 views
Quantlib: How do I price a bond after having built a term structure
I below are my codes using QuantLib to build a term structure
What I would like to do is use that to price any hypothetical bond lets say
startdate : 8 Feb 2016
end date : 8 Feb 2021
coupons : 10% ...
2
votes
1answer
121 views
Modelling Geometric Browian Motion price model with stochastic volatility
I'd like to generate scenarios (simulate several paths of the process) for several stocks using multinomial Geometric Brownian Motion under Stochastic volatility assumption. I'm going to use it in my ...
3
votes
0answers
74 views
Operator splitting method on three assets black scholes equation
Currently I am studying finite difference method on derivatives with three (or more) underlyings and little bit confused on operator splitting method because two papers have different result.
For the ...
3
votes
3answers
373 views
Which measure is used to price a swap?
When we value the floating leg of a standard vanilla swap, we replace the expectation of the future floating rates by the forward rates known today. However my understanding is that the forward rate ...
0
votes
0answers
26 views
What is a succinct description of the difference between neutral and indifference pricing as per Srdjan Stojanovic?
His book (Neutral and Indifference Portfolio Pricing, Hedging and Investing
With applications in Equity and FX, by Srdjan Stojanovic, Springer, 2011) is not quickly readable.
Wikipedia entry on ...
4
votes
0answers
61 views
Confused about discretization
I am reading a paper here: https://pdfs.semanticscholar.org/5f91/2d46b02b03230a4ffaaa42d655b2b6147d56.pdf
The following is my confusion.
The paper has the following continuous time model for the price ...
1
vote
2answers
75 views
Graph of a down-and-in barrier option
Here is a graph of Price vs Spot from Joshi's Quant Interviews book,
The first line is a down-and-out barrier option and the other one is a down-and-in barrier option. The strike is 100 and the ...
1
vote
0answers
35 views
How could the WTI future price be as low as -40 on Apr 20? [duplicate]
Were there any known high-frequency firms suffer from it?
As the brent price stays normal, I believe that many algorithms would have recognize that price different as an arbitrage opportunity.
For a ...
2
votes
1answer
90 views
Pricing multidimensional equity
How would you price \begin{equation*}
\mathbb{E}^{Q} \left[ e^{-\int_{0}^{T}r_{s}ds} f \left( S_{T_f}^1, S_{T_f}^2 \right) | \mathcal{F}_{0} \right]\end{equation*} with $T_{f} \le T$ and $S^{1}, S^{...
8
votes
3answers
1k views
What is the Risk Neutral Measure?
What is the Risk Neutral Measure?
I don't believe this has been answered on the internet well and with all the parts connecting.
So:
What is the risk neutral measure/pricing?
Why do we need it?
How ...
1
vote
1answer
150 views
FX Forward rate agreement valuation in quantlib
I am trying to value an FRA in quantlib Python using the below code:
...
3
votes
1answer
126 views
How to do Fama French (1993) cross sectional regressions? A few questions
I am still relatively new to asset pricing factor models and have a few questions about my current empirical study. I would be very pleased if you could help me.
I have created a new factor which I ...
1
vote
0answers
51 views
Options pricing model inversion
He cited about Roll's compound formula for finding the lead-lag effects between stocks and options. I have a similar data for National Stock Exchange's Index, NIFTY but it's daily, not intra-day. I ...
0
votes
0answers
71 views
Stock Price as Numeraire, Two Stocks & One Money Market Account
We have two uncorrelated Stock price processes and the classical Money-Market (MM) account. Under the MM Numeraire, both stocks are Martingales when discounted by the MM, as usual.
Question: I would ...
10
votes
1answer
419 views
Numeraire correlated to the traded asset
The Fundamental Theorem of Asset Pricing states that:
\begin{align*}
\frac{X_0}{N_0} &= \mathbb{E}^N{ \left[ \frac{X(t)}{N(t)}|\mathcal{F}_0 \right] }
\end{align*}
The usual conditions apply (both ...
2
votes
1answer
158 views
How to get the price of a bond if the yield is given or viceversa in QuantLib
For example
Can u provide with a detailed example please if i have ( maturity, issue date, coupon, frequency, days_countbase, (price or yield) what is the (yield or price given this information.
...
0
votes
1answer
66 views
Pricing coupon bond on weekly basis effectively
I have a coupon bond with $NV=20 000 000$ and coupon $4\% p.a.$, assumed the coupon is paid annually (I don't have this stated explicitly). Let's assume, the starting date is 27.4.2015, so the first ...
-1
votes
1answer
85 views
Risk Neutral Pricing, a quick question [closed]
I am a newbie.
The risk neutral pricing has the following formulation:
$$P=\frac{\hat{E(d)}}{R}$$,
But the discounted expected value has the formulation of:
$$P=\frac{E(d)}{R}$$.
The text book ...
0
votes
0answers
90 views
Double jumps stochastic volatility model (SVCJ, Duffie et al, 2000) - characteristic function for VIX
Currently I am working at my master's degree paper where I want to evaluate VIX options using stochastic volatility jump models.I got some MATLAB codes for the SVCJ model for the S&P, but as the ...
0
votes
0answers
32 views
Bond New issue swap pricing
Hi Im trying to understand the different part of the pricing of swaps for an issuer who want to swap his issuance, resulting in the swap dealer paying fixed. Im a little confused as to how it works, ...
4
votes
2answers
322 views
How could Renaissance Technologies have near real-time prices on corporate bonds and other debt? [closed]
Julie Segal, What Renaissance Technologies has that you don't..., Institutional Investor, October 17, 2017.
Does this just mean they are aggregating data from vendors like MarketAxess? Or is ...
2
votes
1answer
96 views
Callable Total Return Swap pricing
I need to price a callable Equity Return Swap by Accrual. ERS has property callable T+1 and I don't get it. Does it mean that when a call happen we fix a price that and pay Accrual the next day? Could ...
3
votes
1answer
77 views
How to find an arbitrage when the solution is not obvious (2 assets in a market)?
I am struggling to find an arbitrage in the following configuration. I know how to prove that there is an arbitrage (using the fundamental theorem of asset pricing). So I ve proven there is an ...
0
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0answers
47 views
difficulty pricing options using stochastic volatility
can someone kindly explain why it was difficult to obtain an explicit formula for pricing options under stochastic volatility. Thanks alot.
0
votes
0answers
60 views
Simple application of the fundamental theorem of asset pricing
From what I understood the fundamental theorem of asset pricing (FTAP) details that discounted asset prices are martingales under the risk neutral mesure.
As an example:
We consider an ATM call ...
1
vote
0answers
76 views
How to use quantlib Excel for valuation of european swaption with vol surface to calibrate?
I would like to replicate the following Bloomberg pricer in quantlib using Quantlib xl. Is it possible?
Thanks
1
vote
1answer
40 views
Assymmetric Risk Call Option
I'm reading in Radu Tunaru's book "Model Risk in Financial Markets" and he argues that two parties in the ļ¬nancial contract do not have the same magnitude of exposure to model risk. The reason for ...
0
votes
1answer
101 views
how to price options in reality [closed]
I'm getting to know the Black Scholes model, which apparently is no longer suitable for pricing options on the market. I would like to write a Master's thesis on option pricing but I do not know what ...
3
votes
2answers
191 views
Why is $S(t) = e^{\alpha + \beta t + \sigma W(t)}$ used as a model for prices?
Why is the Geometric Brownian Motion defined as $S(t) = e^{\alpha + \beta t + \sigma W(t)}$ used as a model for stock prices? $S(t)$ has a lognormal distribution which is right skewed. Another problem ...
0
votes
0answers
25 views
Arbitrage and dominant strategies : Linear Pricing measure
Given a monoperiodic setting, my professor defines that if there is no arbitrage opportunity, it means that there is no dominant strategy. This is clear.
However he defines that if there is NO ...
0
votes
0answers
63 views
How Can I determine Swap rate?
I should calculate a swap rate of IRS contract by knowing that the risk free rate is $r(0) = 0.5$ and the defaultable rate, $r_1$, evolves in discrete time following a 2 period multiplicative binomial ...
0
votes
1answer
96 views
Black & Scholes under stochastic interest rate (Vasicek) [closed]
I'm a beginner in Quantitative finance and I'd like to ask you for help about this exercise. I have to price a put option on a risky asset by working under stochastic interest rate, so I have to ...
3
votes
2answers
329 views
Pricing In Real Life vs Theory
When selling/buying vanilla call options, do one price them according to some pricing formula (i.e Black-Scholes)? Or is the only point using pricing formulas to find the implied volatility and then ...
