Questions tagged [pricing]
The pricing tag has no usage guidance.
295
questions
0
votes
1answer
44 views
What is 450 pips below spot for USD - JPY currency pair?
I'm new to FX derivatives and I'm trying to price a derivative of USD - JPY pair at 450 pips below spot for USD - JPY. Let's assume that the spot is 109.36; would this mean that 450 pips below spot is ...
0
votes
1answer
38 views
What is the way to calculate “Risky PV (Present Value)” (discounting including the probability of default) from bond yield curve?
Instead of using CDS spread to do risky discounting, I would like to use the bond yield curve. Can I directly use the discounting factors from the bond yield curve or do I need to figure out the ...
0
votes
0answers
55 views
Pricing of a barrier reverse convertible in python with monte carlo simulation
I'm a finance student and try to do the pricing of a given barrier reverse convertible. This has to be done by a Monte-Carlo-Simulation in Python.
The underlying is a stock of ING Groep N.V.
Strike ...
2
votes
1answer
72 views
FCFF of a stock and its derivatives
This is the table I have:
I want to use the $FCFF$ to calculate the stock price, when I did this using the $DDM$ I got $£16$ as the stock price.
I've never used FCFF before but I know there are a few ...
13
votes
2answers
284 views
Why do we need to split market and default information into 2 separate filtrations?
The reduced-form approach to modelling derivatives with credit risk normally assumes the existence of two filtrations:
A market filtration $(\mathscr{F}_t)_{t\geq0}$ carrying market and economic ...
0
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0answers
36 views
Pricing bonds with different coupon frequencies
Suppose that I have to price a bond that pays fixed rate coupons every three months but all other bonds of that issuer pays coupons every six months. Furthermore suppose that the six months bonds are ...
2
votes
1answer
339 views
Risk Neutral Valuation, Drifts and Calibration
Lets consider a pricing model like Vasicek.
Apparently, if you calibrate a derivatives pricing model to market prices this gives you risk neutral parameters. Its not clear to me as to WHY this will ...
0
votes
0answers
35 views
CEV Model Pricing-Implied Volatility Surface
I am trying to validate a local volatility model (Dupire) and I was told to do the following in order to validate it.
With a deterministic model as it is the CEV model, I have to price several options ...
10
votes
2answers
429 views
Differences between main classes of interest pricing derivatives models
There seems to be 3 main classes of interest rate pricing models: 1) Short rate models, 2) Heath Jarrow models and 3) Libor Market Model. My book doesnt seem to explain why we need all these different ...
2
votes
2answers
108 views
multi asset option pricing
Assuming option on each single asset can be priced by Black Scholes, i.e. both S1 and S2 follow GBM. The correlation between vol of S1 and that of S2 is rho. Assuming constant interest rate, no ...
1
vote
0answers
25 views
Black 76 and Asian Style Options on Shaped Power Futures
I am attempting to price a monthly lookback option on the gen-weighted average price of power at a particular solar plant over a given month. If the option settles at hub H, am I right to shape the ...
2
votes
1answer
136 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
222 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
47 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
241 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
246 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
146 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
78 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
80 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
47 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
42 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
52 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
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0answers
46 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
48 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
174 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
137 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
45 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
62 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
242 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
2answers
116 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
86 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
85 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
2answers
115 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
13 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 ...
1
vote
1answer
137 views
Premium of FX Option with American Barrier [closed]
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
72 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
199 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
1answer
335 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
81 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
84 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
102 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
207 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
125 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
488 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 ...
3
votes
1answer
254 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
81 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
51 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 ...
