Questions tagged [pricing]
The pricing tag has no usage guidance.
250
questions
2
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0answers
55 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
51 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
48 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
99 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
68 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 ...
2
votes
3answers
345 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
57 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
64 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
34 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
81 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
540 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
76 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
82 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
48 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
58 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 ...
9
votes
1answer
334 views
Numeraire correlated to the traded asset
Edit: is there any work published on Numeraire being correlated to one of the traded assets? I haven't found a single paper online on this topic. If anyone has links to any resources on this topic, ...
2
votes
1answer
138 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
65 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
79 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
51 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
28 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
309 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
81 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
69 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
44 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
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0answers
47 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
57 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
96 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
181 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
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0answers
19 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
62 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
61 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
306 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 ...
2
votes
1answer
214 views
Black and Scholes pricing
I want to price B&S with $S_t$ stock price that has payoff, $h(S_T)=(S_T^3-S_T^2)^+$. Would it be wrong if I solved as $(S_T^3-S_T^2)^+\implies (S_T^3\geq S_T^2) \implies (S_T\geq 1) \implies (S_T-...
0
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0answers
72 views
Nonlinear dependency between prices
Can you help me with pricing theory?
There are three assets: $A$, $B$ and $C$ with prices $P_A$, $P_B$ and $P_C$ respectively. There are two processes (production, transportation, etc.) that ...
2
votes
1answer
86 views
Risk Neutral Pricing and the Drift
For risk neutral pricing, why do we want to compute expectation of a martingale? why is this so important? Why do we dislike the drift so much?
Avoid math heavy answers please.
1
vote
2answers
86 views
Deltas on Barrier options vs Vanilla options
In "Heard on the Street" it states that
$$\Delta_{\text{up and out call}} \leq \Delta_{\text{standard call}} \leq \Delta_{\text{down and out call}}$$
Is there an intuitive explanation for why this ...
1
vote
0answers
104 views
Pricing of the compound coupon bond with PDE
I am now studying finance math using Steven E.Shereve's book.
Using Interest Rate models, We can the price for zero-coupon with maturity price $1$ under Hull-White interest rate model[page 274] and ...
1
vote
1answer
79 views
Bonds are traded and settled at clean price or Dirty price? [closed]
Are Bonds are traded and settled at clean price or Dirty price ?
1
vote
1answer
124 views
OHLC prices after filtering
Assume we have minute-bars of OHLC stock prices. Then, applying Kalman filter to those prices separately, we can remove a measurement noise and obtain the estimates of the states of the price ...
3
votes
1answer
80 views
Time of Nasdaq daily close price
On the Nasdaq website It Is stated that the market closes at 4:00pm.
However I have historic intraday minute prices and I can see that that are minutes with prices after 4:00 PM (I am assuming its ...
5
votes
1answer
524 views
Libor to SOFR transition Yield Curve Construction
With the imminent transition from LIBOR to SOFR next year, what are the data points practitioners are using to the yield curve? Also, since LIBOR implicitly took into account credit risk of the ...
2
votes
0answers
24 views
Implying a required rate of return on an option from the required rate of return on the underlying
Is it possible to imply a required rate of return on an option from a required rate of return on the underlying?
For example, given a known cost of equity, can you calculate the required rate of ...
2
votes
1answer
122 views
Fair Strike for Variance Swap with no Skew in IV Surface
I am reading through Derman's 1999 research notes, "More than you ever wanted to know about Volatility Swaps."
In equation B4 of Appendix B, the author takes the Taylor Series of the variance swap ...
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0answers
53 views
Pricing Equity Swaptions
Consider a swaption to enter into a standard equity swap as a fixed-rate payer, equity receiver, in which the notional principal is fixed.
If the strike is K. the underlying swap starts at time 0=n ...
0
votes
1answer
50 views
Why would a lower stock price leads to higher value of a call option?
Currently I am reading Basic Black Scholes: Option Pricing and Trading by Timothy Falcon Crack.
At page $47,$ the author mentions the following.
Higher interest rates decrease the present value of ...
0
votes
1answer
26 views
Do not understand 'If an option position includes short American-style options, then the payoff-diagram may be misleading'
Currently I am reading Basic Black Scholes: Option Pricing and Trading by Timothy Falcon Crack.
At page $42,$ the author mentions the following.
If an option position includes short American-style ...
0
votes
0answers
34 views
CDS ISDA Pricing (usage of accrued in calibration)
I am looking to understand the ISDA CDS Pricing Model for a 1Y "Buy Protection" CDS with Coupon = Quoted Spread = 100bp. Numbers are from Bloomberg.
Cash-Flow Matrix
...
