Questions tagged [pricing]

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Find the right module for CDI DI BRL swaps valuation Quantlib

I'm trying to find a way to price BRL CDI Swaps with Quantlib but I can't find any solutions so far - so I was wondering if anyone encountered this issue: I don't see any solution on Quantlib. I ...
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Quantlib FRA and interpolated rate in Swaps vs BBG valuation

I am building a CZK swap pricer on quantlib, and I am trying to understand my differences with Bloomberg pricing. I believe the way I set up my FRA is wrong, the reason is because even though I match ...
Gloomy's user avatar
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173 views

Quantlib - mismatch with BBG Swap

I'm trying to price a CZK swap via Quantlib with BBG data, so far nothing complicated but I can't seem to match the floating leg cashflows, and NPV, when I price my swaps, even if I find the right Par ...
Gloomy's user avatar
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1 answer
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Pricing an option with a certain payoff

Suppose an option with a payoff function $$ \max((1+k)S_1,kS_2) $$ where $S_1, S_2$ are stock prices and $k>0$ is a constant value. To value such an option, one would decompose this payoff function ...
math4biz's user avatar
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State Price Densities vs PDF of Payoffs in Ait-Sahalia (1998)

At the start of section I in the paper, the authors talk about the difference between the SPD/risk-neutral PDF/equivalent martingale measure vs the PDF of payoffs. I understand that the SPD is used in ...
Kai's user avatar
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52 views

Pricing of a non-standard swap contract

Here I have a swap product, where a fixed and floating interest rate will be applied on notional amount. Fixed and floating legs involves 2 currencies, one of them is delivery currency (e.g. USD) and ...
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Pricing a callable bond in a minimal way

I am looking for a minimal way to price callable bond from a defaultable issuer. The idea is to assume that we are in a deterministic world (i.e no volatility). I tried a methodology but I am not sure ...
mazalaza's user avatar
1 vote
1 answer
140 views

In the context of derivatives pricing, what are Pillars and Marking?

as the title says, I've heard of the terms 'Pillar' and 'Marking' in the context of fitting volatility smiles and derivatives pricing in general and I'm having difficulties finding definitions on ...
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39 views

Binary Signals and Combined Price Predicitions

Consider a binary signal $s(t)\in\{0,1\}$ for times $t\in\mathbb{R^+}$. Also define an asset price $X(t)$. Suppose that the curve, $E(r(t+h)\space|\space s(t) = 1) = \alpha (1 - e^{-\delta h})$ where $...
anonymous's user avatar
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Convexity Adjustment for Average Rate IRS

Suppose that one want to price an Interest Rate Swap with daily averaging, i.e. the floating leg looks like $$Floating~Leg = \sum\limits_{i=1}^N P(T_i)\cdot\frac{\sum_{k=1}^m F(t_k, t_k+\delta)}{m}, ~...
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Carry for an Interest Rate Swap

I don't get why for calculating the carry of a spot starting swap I need to adjust the difference between the fixed rate and fixing by the Dv01? For example if I receive in a 5y swap and want to ...
Finance_student's user avatar
1 vote
0 answers
51 views

Par par asset swap counterparties in practice

In practice is it possible to enter into a par par asset swap where the bond is purchased from counterparty A and the swap element is conducted with counterparty B?
Workinghardtohardlywork's user avatar
2 votes
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85 views

Black-Karasinski & Market Price of Risk [closed]

I have implemented the Black-Karasinski model using trinomial trees and calibrated following Brigo (2007) page 29. However, the results do not fit the interest rate curve practiced in the market. As I ...
user3081005's user avatar
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182 views

How to price an inflation caplet/floorlet using Bachelier Formula?

I am trying to recalculate the prices of inflation cap in order to calibrate a SABR model. I have this table which gives me the normal volatilities values in % for the different strikes and different ...
EOST's user avatar
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1 answer
231 views

Incorporating the I-Spread and Parallel Shift for Accurate Bond Pricing

I am currently working on pricing bonds and intend to utilize the S490 curve sourced from Bloomberg. This curve is constructed exclusively using swap rates. However, I have encountered challenges when ...
TourEiffel's user avatar
2 votes
1 answer
110 views

What are the quantitative models for modelling the SOFR rate, the IR products when Libor rates end [duplicate]

Many year ago, I worked on the pricing of IR products (Floating rate swap, CMS swap, Cap, Floor,...) Libor rates are now replaced by SOFR rate. I would like to know What are the new IR products (...
NN2's user avatar
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2 answers
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Quantlib SOFR swap repricing across 2 different dates

I am trying to price SOFR swaps in two different dates (the same swaps, just different curves and dates) This are my initial parameters: ...
Lucas Triana's user avatar
1 vote
1 answer
192 views

Discounted price of an option

If the discounted price of any asset is a martingale under risk neutral measure, why is $E^Q[e^{-rT} (S_T-K)_+ | F_t]$, not merely $e^{-rt} (S_t-K)_+$? This is something I wanted to clarify, since ...
LAC's user avatar
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13 votes
4 answers
399 views

How to price very short dated options?

I was wondering if there is any industry standard in pricing very short dated options, from say 6h options down to 5 minute options. My thinking is that as time to expiry gets shorter and shorter, the ...
apocalypsis's user avatar
3 votes
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114 views

Options skew: when is a perfect fit desirable?

I'm still troubled by a rather basic question, namely when is a perfect fit to the vanilla skew really necessary? I think if you are trading vanilla options and/or Europeans that can in theory be ...
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Incorporating Market Prices into Betting Models

In betting models, the price offered by the market is often ignored until the end. However, it seems like the price is a valuable piece of information that cannot be overlooked. Consider a ...
T.J. Gaffney's user avatar
4 votes
3 answers
357 views

pricing in the case where payment currency and collateral currency are different?

I'm asking for the curve construction of the discount curve in the case where payment currency and collateral currency are different. If I refer to BBG, in the case of a USD swap collateralized in EUR,...
SIMO's user avatar
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Python Quant Lib - Bond Pricing ex coupon period [closed]

were wondering If anyone knows how to use rate bonds on Python Quantlib, that have an ex-coupon period. For example the link below shows the construction of such a bond in the c++ quantlib using ...
RD k3's user avatar
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2 votes
1 answer
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Questions about the replicating portfolio in the binomial model

I'm starting to teach myself quantitative finance and I've got several questions (marked in bold) regarding the replicating portfolio of a security in the binomial model. I'm following, among others, ...
user_12345's user avatar
4 votes
1 answer
225 views

Calibration of Local or Stochastic Volatility Models to Prices vs Implied Volatilities

As the title suggests, what is the difference between calibrating an option pricing model (say the Heston model) to market option prices instead of computing their implied volatilities using Black-...
Kai's user avatar
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1 vote
1 answer
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Basic question/clarification about the LOOP

This is a very basic question/comment regarding the way that the LOOP is stated in the book "Dan Stefanica - A Primer for the Mathematics of Financial Engineering". The proposition goes as ...
user_12345's user avatar
0 votes
0 answers
42 views

Pricing Convertible Bond's Equity Portion Workaround

We're working on the stress test of Convertible Bond which requires us to compute the loss when the price of CB changes. For a quick workaround, we retrieve bond floor and option value from Bloomberg ...
quanttrade's user avatar
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0 answers
148 views

How to compute Vega in the Heston Model

I am computing European Option Sensitivity as: Delta, Vega and Gamma. I am using Heston Model to simulation spot and the variance. While computing Delta and Gamma, I understand, we need to bump spot ...
Garv's user avatar
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4 votes
2 answers
527 views

What does implied volatility say about the underlying?

Here's a question that's been on my mind on-and-off for some time now. It's well known that Black-Scholes is an unsuitable model for pricing in the current (post 80s) market as it fails to capture the ...
OJK's user avatar
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2 votes
1 answer
246 views

No expected return in Black Scholes formula: But how about the gamma?

A lot has been written about the fact that the expected return of the underlying asset is not part of the Black Scholes formula. I understand the argument that the performance of the underlying asset ...
equis's user avatar
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1 vote
1 answer
102 views

Bond Option: Cash Price or Quoted Price as Underlying

John Hull mentioned in his book using Cash Price(Dirty Price) instead of Quoted Price(Clean Price) in pricing a bond option using Black-Scholes. It confuses me as it seems more natural to assume the ...
League Super's user avatar
1 vote
0 answers
79 views

Calibration period

I want to calibrate some model to market data. This could fx be Bates, Kou, Black-Scholes, etc. So, for each model we have a set of parameters which need to be estimated through calibration. Now, my ...
CasMath's user avatar
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1 answer
176 views

How to price PIK (paid-in-kind) coupon bond with option by the borrower to pay cash?

I'm trying to price a PIK coupon with an Embedded Option by the borrower to pay in cash. Without the Embedded Option, it is simply a zero-coupon bond paying Principal*(1 + coupon rate)^n at the end. ...
Andrei Sultanov's user avatar
1 vote
0 answers
85 views

What is the minimum price of an option, given no information about Greeks? [closed]

I was asked this interview questions for an analyst level structuring role and it has been bothering me since I can't figure it out: Assuming the price of an equity is 100, what is the minimum price ...
nicholaskong's user avatar
1 vote
1 answer
225 views

Does every process need to be a martingale under martingale measure?

From the pricing theory, processes need to be martingales when divided by the numeraire asset. A classical example is a stock option: Consider a money market $B$ being the numeraire asset. When we ...
user2743931's user avatar
0 votes
0 answers
49 views

Pricing of constant leverage certificates

I am trying to value the open-ended constant leverage certificates like Bull DAX 20x. As the certificates are reset daily with the movements of the underlying asset, how could they be modeled for ...
Tomas's user avatar
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2 votes
3 answers
640 views

Pricing a bond denominated in USD but issued in Europe

I need to price a USD bond using yield-to-maturity from the yield curve (YC). The bond is issued by a German company. My question is what yield curve should I use: the US Treasury YC or the EUR YC of ...
Rad's user avatar
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0 votes
2 answers
353 views

Practically, are the prices of 0-strike European calls and stock identical?

By no-arbitrage, the price of a vanilla European call with $K=0$ should be that of the underlying stock (as selling the call is perfectly hedged by buying the stock). However, is this true in practice?...
actinidia's user avatar
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1 answer
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Convexity adjustment for futures/FRA under T+D measure

In an internal document in my company, the convexity adjustment for Futures is defined as: where and P(0,T+D) is the ZC bond maturity at T+D. I don't understand why is not equal to 1 as I thought ...
DeltaVanna's user avatar
3 votes
1 answer
738 views

Vanna vs volga and vega

So the bloomberg article that I'm referring to (Bloomberg. Variations on the Vanna-Volga Adjustment. Travis Fisher. Quantitative Research and Development, FX Team. January 26, Version 1) states that ...
Pearl Trivedi's user avatar
1 vote
0 answers
351 views

Volga Vanna Pricing Approach

So when using this method to price exotic options , it's stated that we need to calculate the vanna (how vega changes with respect to change in spot prices) of the exotic option and the volga ( how ...
Pearl Trivedi's user avatar
3 votes
1 answer
261 views

Convergence of crypto perpetual futures

Perpetual contracts are supposed to track the spot prices through the funding mechanism. Typically, if the future has traded above the spot in the last averaging period used to compute the funding, ...
Marc P's user avatar
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0 answers
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Crypto perpetual futures (swaps) pricing away from instantaneous moment of funding

Most perpetual futures offered by crypto exchanges employ a funding payment mechanism, that acts to periodically return the price of the perpetual to the underlying index price. The mechanism is ...
quantotonto's user avatar
1 vote
0 answers
74 views

Tree Pricing FRN Implementation

When pricing a bond via a short rate model on a tree, it seems natural to include intermediate time steps in addition to those corresponding to cashflow dates (i.e. for bonds with American style ...
ripvan's user avatar
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7 votes
3 answers
840 views

What are some interesting recent machine learning related developments in the QF domain?

In 2020 I wrote a MSc thesis on the hedging of exotic options using recurrent neural networks (loosely based on the paper Deep Hedging (2018)by Buehler et al.). Since then I have been interested in ...
QuantNero's user avatar
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1 vote
1 answer
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Why is there a lot of focus on derivatives pricing and much less on stock pricing?

I am a quantitative finance student, and during the first year of this Master’s Degree I couldn’t help but notice that there’s a lot of focus on derivatives pricing and little or none on stock pricing....
Andrei's user avatar
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8 votes
4 answers
555 views

How to fundamentally value cryptocurrencies?

Investing in cryptocurrencies is a wild ride. There is obviously a lot of speculation involved but my question is another one: what are good models to evaluate the fundamental value of ...
vonjd's user avatar
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2 votes
0 answers
72 views

B&S pricing of option with convex transformation

Assuming B&S world, is it possible to price an (European) option on a general transformation $f(\cdot)$ of $X$? What kind of assumptions should we make on $f$? Is convexity sufficient to find some ...
apocalypsis's user avatar
2 votes
0 answers
124 views

Pricing Options on Inefficient/Illiquid Assets

I'm currently trying to gather more information on option pricing in very inefficient markets for the underlying. By inefficient, I mean markets with consequential bid-ask spreads (5% or more) and ...
arqer8's user avatar
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Does the Lévy characterization imply that the price process of any asset is a Brownian motion?

While studying Brownian motion applied to mathematical finance, I came across these lecture notes by prof Steve Lalley. In the prologue, he gives this explanation for the occurrence of Brownian motion ...
sound wave's user avatar

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