Questions tagged [pricing]
The pricing tag has no usage guidance.
289
questions
-1
votes
0answers
25 views
Comparing theoretical value and Monte Carlo Simulation [closed]
I am trying to compare the theoretical value of a Call Option with its Monte Carlo value, and was wondering what to put as S in the Call Option formula, do I put S as the mean of the daily simulated ...
2
votes
1answer
54 views
Backshifting Price Timeseries with Memory Preservation
In Advances in Financial Machine Learning the author makes a case for fractionally differentiated price returns in chapter 5. The reason is to both maintain memory and to generate a stationary time ...
4
votes
2answers
215 views
what does the cover page of Guyon and Labordere's Nonlinear Option Pricing represent?
It could be a bit offtopic, but I don't see the link between the contents of the book and the cover page.
Thanks
2
votes
0answers
46 views
Valuing an electricity swap
A colleague of mine and I are debating how to price an electricity swap. Keeping in mind that electricity futures are delivered over a period of time rather than at a point in time, I maintain that ...
5
votes
2answers
232 views
Strategy of replicating a portfolio with payoff $\int_0^T \frac{dS_t}{S_t}$
Given the asset price $S_t$ which is defined as follows
$$\frac{dS_t}{S_t}= r_tdt+\sigma_tdW_t$$
where $r_t$ is not necessarily deterministic.
What is the strategy of replication of the portfolio with ...
1
vote
1answer
230 views
Pricing of forwards contracts
Of the courses I am taking in college this semester, two are Financial Mathematics and Derivatives. In each course, we learn different formulas to calculate the forward price of a forward contract. ...
2
votes
1answer
121 views
Quasi Monte Carlo and Brownian bridge (how to combine them)
I am trying to understand how quasi Monte Carlo (QMC) and the Brownian bridge (BB) can be combined to price an asset, but I am having a hard time understanding how. I am just considering a European ...
2
votes
1answer
64 views
COS Method and existence of density
Hey in the COS method we use characteristic function of $\ln{S_T}$ to price european options (by recovering density from characteristic function). But how do we know that density exists? For example I ...
0
votes
1answer
79 views
Misconception about replicating portfolio [closed]
I am solving a problem in which following payoff is provided:
With $S_0=100$ and $T=8$. Looking at the payoff it seems obvious that it is replicated with two european put options ($K=100$ and $K=150$)...
0
votes
1answer
40 views
Quantlib error initializing CapFloor C++ Class
I'd like to use QuantLib as a C++ library to price interest rate derivatives, in particular Cap&Floors. To semplify things a little, let's say I have a vector of EURLibor1Y rates for different ...
1
vote
0answers
41 views
Why are futures contracts on the secondary market described as having 1 price, instead of 1 price for contract buyers and a 2nd price for sellers?
I'm first going to describe how I believe the futures contract mechanics work, and please correct me where I'm wrong:
A contract seller (in a short position because usually they don't actually ...
-1
votes
1answer
48 views
Delta of a forwards contract
in university's lecture notes, from what I understand using the replication of portfolio principle to price derivates, the forward price of a contract K should be: $K = P_0(1+r)$ where $P_0$ is the ...
0
votes
0answers
38 views
Pricing a barrier call option using a copula
Consider two stocks, $S_1$ and $S_2$, with marginal pdfs $f_{S_1}$ and $f_{S_2}$. Assume $F(S_1,S_2)$ is the joint CDF. I'm trying work out a semi-analytic formula for the price of the barrier call ...
0
votes
0answers
42 views
Why do I get different results from different credit pricing engines in QuantLib
I am trying to use three credit pricing engines: IsdaCdsEngine, MidPointCdsEngine and IntegralCdsEngine but I am getting different NPV results from each of them. The case is like this: When I have as ...
0
votes
1answer
170 views
No-arbitrage arguments: how do additional fees affect futures on an index?
I am considering a fund that replicates the returns of an index minus a fee, using the following case-study my lecturer used regarding SPY:
In practice, futures and forwards can be written on assets ...
1
vote
3answers
134 views
Are there really closed-form pricing formulas? [closed]
Good morning to all,
I wanted to post this question here hoping to have more details.
The concern, in my opinion, comes from the fact that the concept of "closed-form" is not clear. Because, ...
1
vote
0answers
31 views
CMS Convexity adjustment with negative interest rates
I need to price bonds with CMS-linked coupons. In order to determine the convexity adjustment to apply to the forward rates, I would use the formula that appears in Hull's Futures, Options and other ...
1
vote
0answers
61 views
Historical data on valuations for internet companies during dot-com bubble
I am looking for data on historical valuations for internet companies during the years of the dot-com bubble (2000 - 2002). I know that big auditors have or at least have access to such data on ...
2
votes
1answer
151 views
DV01 on LIBOR vs. SOFR basis Swaps
If I had entered into a USD 10mn pay SOFR, receive 3M LIBOR swap with a 5yr maturity, I would have had a positive NPV of about 80k by the beginning of March due to the massive drop in SOFR (1.55 to 0....
0
votes
1answer
71 views
When you rollover a FX Forward, do enter the FX swap at the spot rate or previous forward rate?
from below link:
https://www.linkedin.com/pulse/distinction-between-fx-swaps-currency-risk-management-akubue-cfa/
"if the date of settlement of the export proceeds has been extended by three ...
0
votes
1answer
64 views
Price a contingent claim with payoff $(S_T-K)1_{\{S_T>K\}}1_{\{L\leq X_T\leq U\}}$
I'd like to price the following contingent claim using a copula model.
$$V_T = (S_T-K)1_{\{S_T>K\}}1_{\{L\leq X_T\leq U\}}$$
where $S$ and $X$ are two stock price processes which follow a non-flat ...
1
vote
1answer
81 views
Copula analytic formula for $max(S_T^1 - K, 0) 1_{\{L<S_T^2<U\}}$
Consider the payoff function
$$ V_T = max(S_T^1 - K, 0) 1_{\{L<S_T^2<U\}} = (S_T^1 - K)1_{\{S_T^1 > K\}}1_{\{L<S_T^2<U\}}$$
where $S_T^1$ and $S_T^2$ are two GBM distributed stocks with ...
0
votes
1answer
67 views
FX swap par value
What is the relationship to apply so that an FX swap value is 0 at inception?
For example, for a short 1y EURUSD swap with 1mm euro notional, at inception spot = 1.1000 and 12m fwd = 1.1022, EUR 1y ...
-2
votes
2answers
57 views
What is IV % actually measuring? [closed]
If the Implied IV of an option is 40%, what is the 40% representing, 40% of what?
Does that mean the underlying stock is estimated it may move up or down 40% in a day, month year?
The option price may ...
0
votes
0answers
12 views
How to find State price vector given inflation rate, bond price, states of nature, and dividend
Suppose you have the following information on prices of some assets. The
inflation rate is 2%. The one period zero-coupon bond with a face value of 100 is sold
at a price of 96. There are two states ...
0
votes
1answer
73 views
Premium of FX Option with American Barrier
I have been trying to understand how to price FX options with barriers. In Hull (Options, Futures, and Other Derivatives), there are closed formulas how to calculate the premiums of European Call and ...
0
votes
0answers
18 views
Literature or proof of a lower price for long-term contracts (B2B)
I am currently working on a paper and I am stating that usually long-term supplier - customer contracts result in lower prices. This seems really clear to me. In the B2C spectrum there are many ...
1
vote
0answers
58 views
Using Quantlib to pricing a FR007 swap (which is compounding interest rate in floating leg)
You can treat the FR007 swap like this:
The fixed-rate leg is the same as the fixed-rate leg of the LIBOR swap.
The floating rate can be treated as the combination of some 3-months maturity compound ...
1
vote
1answer
153 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
155 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
1answer
59 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
7 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
65 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 ...
2
votes
1answer
90 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
159 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
111 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
353 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
63 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
80 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
50 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
144 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
62 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
103 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
82 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
128 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
144 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
76 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
422 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
64 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 ...
