Questions tagged [pricing]
The pricing tag has no usage guidance.
219
questions
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40 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
33 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 ...
0
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0answers
11 views
Deciding the MRP of a product [closed]
From the Manufacturer's perspective:
Manufacturing & all other costs (marketing, ops, taxes, interests, etc.) = 170
Assuming s/he want to keep a net profit margin of 10 %
So, s/he would price ...
3
votes
2answers
246 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 ...
1
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1answer
145 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-...
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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
77 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
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2answers
81 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
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0answers
57 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
69 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
108 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
57 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 ...
4
votes
1answer
263 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
21 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
100 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 ...
1
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0answers
42 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
46 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
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1answer
25 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
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0answers
29 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
...
1
vote
1answer
127 views
What happened to future price if rates become negative?
Imagine the spot price of a non deliverable and not paying dividend asset is 100\$. With positive rate, the theoretical formula $F = S \cdot e^{rT}$ give us a future price higher, let's say 105.
If ...
1
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0answers
44 views
New/ relevant ways to retrieve intraday stock pricing
I am trying my best to find cheap/ free ways to retrieve and store intraday stock prices - both historically and going forward. Many of the ways I find seem to be outdated and no longer exist. For ...
1
vote
2answers
370 views
Valuation of Total return swaps (TRS)
I have seen a TRS being valued which has an index as underlying on the asset side. It also has a coupon rate associated with it. Asset leg is calculated by taking
...
4
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0answers
70 views
How to price, hedge ESG-dependent products?
I read with interest news about Netherlands bank trading several novel products in which a counterparty pays floating cash flows linked to the counterparty's ESG (environment, social, governance) ...
2
votes
1answer
92 views
Zero-coupon bond pricing equation derivation
I'm trying to understand how in Chawla's paper that I've linked below, how he obtains equation (2.5) for the zero coupon bond pricing equation?
The equation is:
$\frac{\partial B}{\partial t} + \...
0
votes
1answer
63 views
Interest rate equation from bond price?
If a zero coupon bond price at time $t$, with maturity $T$ ($t<T$), is denoted by
$B(t;T) = B(T;T) e^{(-\int_{t}^{T} r(s) ds)}$
where $r(t)$ is a known interest rate.
How does this transform ...
0
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1answer
75 views
Increase short positions in futures on oil
In this video on severe contango the author says that if the spot price is way under the futures price, a lot of people will buy oil on spot price and enter a short position. Then he says :
...it's ...
3
votes
1answer
75 views
How to model the maturity term of non maturing deposit accounts
My client (bank) currently follows a naive method to model the maturity term of chequing accounts. We need to model the maturity to correctly calculate the FTP pricing of these chequing accounts.
The ...
0
votes
1answer
63 views
Can someone explain to me the intuition behind the discount factor for this simple payoff? [closed]
Let's say you enter into a contract today in which in time t, you receive the difference between the underlying stock price and 100. Denote the stock price as S. Why is today's value of such a ...
2
votes
1answer
212 views
ETF Market Making
I understand market makers of ETFs earn a bid-ask spread (buying low from investors and selling high in the market). But how exactly do they determine when's the right time to buy, and at what price?
...
2
votes
0answers
45 views
CDS pricing using intensity models incorporating liquidity
I want to price a CDS using an intensity based model, but I want to account for liquidity as well.
General model: The default time $\tau$ is the first jump time of a cox process, and the survival ...
2
votes
1answer
199 views
FX Futures pricing formula
I'm reading Paul Wilmott's Introduces Quantitative Finance and stuck a bit with formula $F = S(t)e^{(r-r_f)(T-t)}$ for FX futures pricing. I don't get how to incorporate $r_f$ into the formula, could ...
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0answers
28 views
is there a specific design pattern in C# to model a yield curve into the NS model?
I successfully managed to have a nice NS model to a yield curve I am studying using R, while I am still beginner in C# I wonder if there is a specific design pattern I should follow in order to put ...
3
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0answers
89 views
Pricing eurodollar futures
How are Eurodollar futures priced in practice?
What I already know: The implied 3 Months rate by the futures is 100-price, since it matches the payoff. Using daily LIBOR rates, one should be able to ...
2
votes
1answer
158 views
Overlapping vs Non-overlapping returns
Suppose I want to estimate the following regression: $R_t=\alpha + \beta X_{t-1} +\epsilon_t$. Where I use asset returns as the dependent variable. Both overlapping as well as non-overlapping returns ...
3
votes
1answer
142 views
Problem at deriving Bachelier formula with interest rates
In the Bachelier model, I have difficulties with a certain step. I want to figure out the distribution of $S_T$, which is the price process in the Bachelier model.
So far I could state that ($\mathbb{...
4
votes
1answer
89 views
Equivalence of Put Pricing Formulas
I have to show that:
\begin{equation}
P_{t,T}(K)=e^{-r(T-t)} \int_0^{\infty}\left(K-S\right)^+ q_T^S(S)dS
\end{equation}
is equivalent to:
\begin{equation}
P_{t,T}(K)=e^{-r(T-t)}\int_{-\infty}^{...
3
votes
1answer
164 views
Black's Approximation - Discrete dividend for Put Options
I am currently trying to price and option chain for dividend paying stocks (american style exercise).
I am able to calculate the Net Present Value (NPV) of dividends until maturity and then apply ...
2
votes
1answer
121 views
Difference between modelValue from HestonModelHelper and NPV() from VanillaOption
I am trying to calibrate an Heston model and price vanilla option using Quantlib 1.15 and Python 2.7.
I use the following code
...
0
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2answers
261 views
Efficient market hypothesis vs random walk
I am having trouble to understand the distinction between the EMH and random walks.
If I understand correctly, the EMH states that all available information is incorporated into prices, which ...
1
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0answers
120 views
A crash course in pricing
I need to refresh all the pricing theory.
Is there anything like a crash course with practical and intuitive explanations?
I will provide any further information.
I am a mathematical engineer. I am ...
0
votes
1answer
107 views
Is there an asset pricing model that actually works? Can you point me to research that test APMs?
As far as I know there is no APM that is able to explain all stock market anomalies. However, my search for papers empirically test a set of widely accepted APMs was not very successful. I would like ...
1
vote
2answers
140 views
CDS, default probability and bond price
When we calculate the implied default probabilities from CDS, can we use that information to price bonds?
I am getting familiar with Fixed Income. I saw textbooks using implied default probabilities ...
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0answers
25 views
Pricing a transfer option for oil
Need some input in how to attack this problem. Given are 8 timeseries:
UK Oil price, Delivery Quarter 1 2020
UK Oil price, Delivery Quarter 2 2020
UK Oil price, Delivery Quarter 3 2020
UK Oil price, ...
1
vote
1answer
50 views
Transactional costs for shipping in % based on futures market price
Real case: Imagine I want to move an oil from one terminal to another.
I have about 20 +/- tanker companies, but all of them have max capacity on their top deadweight (DWCC) vessel about ...
0
votes
1answer
182 views
pricing deliverable vs non-deliverable fx forwards
I am trying to link these two questions together
Pricing a regular FX forward
This is a contract (say USD vs JPY) where you exchange 2 currencies at maturity at a pre-determined rate, while no ...
3
votes
1answer
332 views
Pricing a callable bond
I have read the Lehman Brother's paper on OAS which I mostly understand, they outline how to find the OAS for a callable bond of which the formula is effectively (ignoring refinancing costs):
Market ...
1
vote
0answers
18 views
How to calculate/estimate CLV for our odd subscription-based business model [closed]
I'm working on a school project where I and other group members come up with a business idea and write a paper containing all necessary information about the business, like the business model, revenue ...
0
votes
1answer
481 views
How to quantify the coupon effect?
I'm reading Moorad Choudhry's book "Advanced Fixed Income Analysis"
The first chapter briefly touches on the coupon effect which I understand from other sources is the effect of pricing an annuity (...
5
votes
1answer
197 views
Pricing in the Heston Model
The dynamics of the Heston Model is
\begin{align*}
\frac{dS}{S} & = \lambda \sqrt{\nu} d W^S \\[0.5em]
d \nu & = k (1- \nu )dt + \epsilon \sqrt{\nu} dW^\sigma
\end{align*}
where $\lambda$...
2
votes
2answers
281 views
Application of Itô's lemma - Forward process
How would be applied the itô's lemma in the following equation:
And we know that:
