Questions tagged [pricing]

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76 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? ...
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31 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
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1answer
79 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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22 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 ...
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62 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
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1answer
89 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
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1answer
75 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
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1answer
78 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}^{...
2
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1answer
75 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
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1answer
55 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 ...
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2answers
122 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 ...
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0answers
107 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 ...
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1answer
68 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 ...
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2answers
82 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
20 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
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1answer
29 views

Transactional costs for shipping in % based on futures market price

Real case: Imagine I want to move an oil for 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
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1answer
68 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
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1answer
170 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 ...
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0answers
17 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 ...
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1answer
103 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 (...
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1answer
119 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 $\lambda$...
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2answers
190 views

Application of Itô's lemma - Forward process

How would be applied the itô's lemma in the following equation: And we know that:
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1answer
151 views

Bond discounting conventions

during the preparation for my thesis, I've come across some strange discrepancies between literature and the information I've been taught. It comes down to the proper way of discounting cash-flows of ...
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0answers
48 views

Preferred Stock pricing model

I am trying to build a model to price a preferred stock. I want to model the dividends as random payments. I can't find any papers online on the subject. Does anyone have a reference for me?
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1answer
98 views

Why Quantlib Option NPV does not change when repricing?

Trying to learn Quantlib with Python, please have a look at below code: ...
2
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1answer
77 views

Which methods are there to determine the price of futures contracts?

Which method apart from the cost of carry model exists, and which works best in real life? How does the market expectations impact on the futures price?
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0answers
43 views

FX Average Forward Pricing

Lookin for documentation on how to price FX Arithmetic Average Rate Forwards. Couldn't find any info on textbooks. Any help is very appreciated.
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2answers
112 views

ETF Replication

I have a question regarding the ETF replication methods. I know there are two main methods, namely physical and synthetic replications, but I would like to understand how an ETF trader can : ...
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1answer
86 views

Getting rate from a share's given futures price, with known dividend information

Question was answered by @Ezy - thanks! This seems to be a basic question, but mysteriously unsolvable as far as I can see. It concerns calculating the interest rate from a given stock futures ...
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0answers
29 views

About buying and selling a cumulative parisian options

I ask my question here because I want to know more about the cumulative Parisian options introduced by M. Chesney, Mr. Jeanblanc-Picué and Mr. Yor in 1997, then developed by Hugonnier in 1999 and F. ...
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1answer
103 views

VXX Put pricing

Last week at Friday's close, the Dec 14 37.5 Put options were selling for \$.68 with VXX at \$40.29. This week at Friday's close, the Dec 21 37.5 Put options were selling for \$.38 with VXX at \$40.50....
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1answer
54 views

Levy process and random measure

I am wondering if random measures are used under a Levy process and how this connects to finance (particularly pricing). Any paper or books for suggestions is welcomed.
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1answer
122 views

What is the value/price of a bond paying floating rate

I am going through J.C.Hull for swaps. Where he says we can value a swap using bonds. Let $B_{fl}$: value of floating rate bond, $L$ notional principal. Why is $B_{fl} = L$ just after a payment ? What ...
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2answers
376 views

Hedging with machine learning

I’ve been thinking about an interesting problem lately: Suppose I have a position in an exotic derivative. How can I automate the hedging process? Traditionally, one build a pricing model and ...
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1answer
51 views

What discount rates should I use to price municipal bond with unknown market price

I have a payoff structure but I do not know the price of bond. The bond is municipal. What discount rates should I take for each period in order to calculate its fair price?
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1answer
217 views

Basic Replication of European Call Option

I am looking at the very basics of replicating an option with a portfolio of risky and risk free assets. As such we can define a portfolio of $x$ no. of shares, $y$ bonds & $z$ options at time $(T)...
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1answer
81 views

Spreadlock derivatives

I would like to price a spreadlock forward swap and a spreadlock swaption but I don't find in the web any research article. Would you please provide me with some freely accessible papers on the web ? ...
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0answers
48 views

Antithetic sampling on non-linear payoff?

If I wish to price an option with Monte Carlo using the standard GBM process, which have payoff $(max(S-K,0))^2$ Why is it not suitable for a non-linear payoff?
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1answer
187 views

Question on volatility equation for CMS pricing

In "Full implications of CMS convexity (Cedervall and Piterbarg, 2012)", a.k.a. "CMS: covering all bases (idem)", the authors develop a CMS model equipped with an annuity mapping function which ...
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1answer
206 views

Kirk Approximation and Exercise Probability

I have a question about spread options. I'm pricing a put option on two assets, with a strike value of 0: $max(K-(F_1-F_2);0)=max(0-(F_1-F_2);0)=max(F_2-F_1;0)$ I know this kind of options could be ...
4
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1answer
2k views

What is the importance of alpha, beta, rho in the SABR volatility model?

I just read that SABR model is a stochastic volatility model, which attempts to capture the volatility smile in derivatives markets. The name stands for "stochastic alpha, beta, rho", referring to the ...
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0answers
31 views

amount of data - option pricer calibration

A practical question. When you calibrate an option pricer (whatever the model is), do you use data from several days or just one day (last trading day)? I noted some papers use data from one single ...
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27 views

How is this steel price implied based on enterprise value-to-Ebitda?

How was the steel price of $650 per ton calculated based on the forward-looking enterprise value-to-Ebitda in this Bloomberg news article? https://www.bloomberg.com/news/articles/2018-03-23/tariff-...
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1answer
85 views

Where can I find free security and derivative pricing software?

I am looking for a free derivative valuation software that can compute value and sensitivities. It should be easy and straightforward to use, e.g., I can get results by supplying market data and trade ...
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0answers
505 views

Multi-currency CSA discounting curve construction

I have a number of eur/usd and gbp/usd MtM Basis swaps that are collaterized in USD. For the non-usd legs I'm constructing the muti-ccy csa discounting curve. Im using forwards for the short end of ...
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1answer
169 views

Confusion in forward contract pricing on a stock using the binomial model

In the financial engineering course I am taking we are studying how to use the binomial model to price derivatives, one of which is the forward. For this question it is related to a forward contract ...
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1answer
1k views

Pricing a double barrier option using Monte Carlo (C++ & Python code included)

I'm trying to price an option with upper and lower barriers using MC where the payoff is $B_u$ when $S_t > B_u$, $B_l$ when $S_t < B_l$ and $S_t$ when $B_l < S_t < B_u$. I have written ...
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1answer
43 views

How to work out bond price given other bond prices?

I'm stuck on the following problem from a financial maths course, and was wondering whether anybody would be able to help me. I don't really know where to begin. The following risk free bonds are ...
4
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1answer
269 views

Exposure calculation of a re-coupon swap

How to calculate the exposure of a recoupon swap (when the MTM of an i.r. swap is settled and the fixed rate is reset to the prevailing swap rate for the residual maturity). It's used to reduce the ...
1
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1answer
338 views

Bootstrapping Quantlib RateHelper Python/C++ [closed]

I am pretty new in the Quant areaa and using Quantlib. I found the pretty good introductions concerning bootstrapping in the book QuantLib Python Cookbook by Luigi Ballabio. I wanted to understand the ...