Questions tagged [pricing]
The pricing tag has no usage guidance.
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1answer
92 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 ...
0
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1answer
77 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 ...
0
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1answer
39 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?
0
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1answer
54 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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35 views
CSA Discounting
I am confused about the way credit and funding issues are incorporated in the derivative pricing after the crisis. As I understand, to price a derivative we need to do it initially as risk free (no ...
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0answers
27 views
I am trying to understand how to price sort of basket option
I am asked to price exotic option as a part of interview process. As far as I understand it is a sort of basket option.
There is a bundle of shares: AAPL (Apple), NVDA (Nvidia), AMD (AMD), INTC (...
0
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1answer
32 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
31 views
discount factor with collateral in two currencies
If a CSA allows for posting cash in different currencies as collateral, then the party
posting collateral has, now and at each future point in time, a choice of which currency
to post. This choice ...
3
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0answers
46 views
Pricing a preferred share
I am looking for references for models which price preferred shares. What are the classic pricing papers?
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0answers
33 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?
0
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1answer
77 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 ...
1
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1answer
104 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 ...
2
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1answer
456 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
28 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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0answers
22 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-...
-1
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1answer
80 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
28 views
Checking for Law of one price on example
I have a problem where I need to check if the law of one price applies to one specific example :
There are three states with equal probability (1/3) and the securities are given by
\begin{equation}
...
2
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0answers
267 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 ...
0
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1answer
79 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 ...
1
vote
1answer
627 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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0answers
42 views
Compound option on basket of swaptions
Consider $n$ European Swaptions $S^n$ with exercise dates $T_1 < \dots T_n$.
These Swaptions can have different parameters: in particular different strikes, different interest rates, different ...
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0answers
168 views
What is the forward price of a bond 18 months from today?
What is the formula to compute the forward price of a bond 18 months from now?
I have the following data:
...
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0answers
21 views
Is investment income earned considered an additional cash flow in an IRR problem?
Having trouble thinking through the implications of investment income and discounting cash flows simultaneously.
Let's say I have two projects to choose from, and I have some flexibility in when I ...
0
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1answer
41 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 ...
2
votes
1answer
166 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
223 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 ...
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0answers
140 views
CDS Option Pricing
I have been struggling to create a pricing model for CDS Options or CDX Options using VBA. There do not seem to be any examples that specifically refer to CDS that I could follow.
From my research I ...
1
vote
1answer
227 views
Call option Delta
I have an exercise where I need to show that the prices of call options $ C(t,K)=E((S_t-K)^+),t \in [0,T]$ with Strike $K$ for fixed $t$:
$$\frac{\partial ^+C(t,K)}{\partial K}=-P(S_t>K).$$
We ...
1
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1answer
138 views
Replicating portfolio for claim on stock with discrete dividend
This is a practice question for an exam:
Consider a market consisting of a bank account with a constant
interest rate $r$ and a stock $S$. The stock pays a proportional dividend
of size $\...
0
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1answer
297 views
What discount rate for uncollateralized cross currency swaps?
To expand on this question, what happens if the uncollateralized swap is of a cross currency variety? Ignoring any xVAs, it's unclear which currency would best determine the discount rate:
a) we ...
1
vote
0answers
62 views
Bond prices tend to 100 at maturity?
Let's assume we have a fixed-income bond, which is paying a yearly coupon. For example a 3 year bond, 1% fixed coupon, issued at par. So we have
at issue ->
$Price=\frac{1}{(1+0,01)^1}+\frac{1}{(1+0,...
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0answers
47 views
Calculating total market price of security
Typically securities trade on a primary exchange and as such the 'price' of that security is quoted from the primary exchange.
For example Exxon (XOM) stock is listed on the NYSE, even though there ...
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2answers
181 views
How to price bitcoins?
From January 2017 to this day, bitcoin price has increased more than 1000%. While debates over the criptocurrency are focused on its short term utility and its disconnection with real financial ...
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0answers
100 views
What rate/structure to use in <yield term structure> for the pricing of callable bond using QuantLib
I am new to quantlib (actually to the fixed income universe).
I am trying to price a callable bond using the CallableFixedRateBond classe of quantlib, and compare it to the market data(bloomberg).
I ...
0
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0answers
36 views
How to valuate collar without LIBOR data
I have a some data for assignment at disposal, but I am lost at the beginning - how to get LIBOR forward rates. I have CAP implied volatilies, OIS rates and Swaption implied volatilitities (no idea ...
0
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1answer
35 views
Should the valuation decision of the following question be undervalued or overvalued?
The official solution to this question is B, but I don't understand that if the recommendation is given by the CAPM model, then the CAPM estimated return should be regarded as "fair" and benchmark for ...
0
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1answer
492 views
Collateralized Interest Rate Swap
I am struggeling with the wording "Collateralized" IRS and try to get an understanding out of it based on an example. Especially what it means that in the multi curve models the expectations are ...
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2answers
211 views
Floating rate note value approximation
I was hoping somebody can assist me with a query. Would it be a valid approach to revalue a frn with a discount margin from a comparable bond as par minus the difference between the quoted margin and ...
0
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1answer
69 views
CDS protection/contingent leg pricing, taking expectation of interest and hazard rates
The Pricing and Risk Management of Credit Default Swaps, with a Focus on the ISDA Model
Screenshot: Pricing protection leg of a CDS, by OpenGamma
In the screenshot above, I am having trouble ...
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3answers
242 views
Black & Scholes doesn't give current option market price
I'm trying to use the Black & Scholes to calculate the price for some options on the CBOE, but I'm having a hard time matching what I calculate with what i see on the market.
As an example I took ...
1
vote
1answer
91 views
How to price a strategy involving more than 2 different prices?
When pricing a spread option with two different prices, one can use Kirk's approximation combined with Margrabe's formula (https://en.wikipedia.org/wiki/Margrabe%27s_formula).
But what if I am ...
0
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2answers
146 views
Pricing an open repurchase agreement
I am wondering, how do you price a open-ended repo (when a maturity date is not set)?
I have done some research and have found no formula's or even an explanation of how to value such a repo. In ...
2
votes
1answer
2k views
Z-Spread vs Discount Margin
I'm comparing two types of discounting: Z-Spread and Discount Margin.
Reading the article by O'Kane Credit Spread Explained I found Z-Spread is used for fixed rate notes meanwhile Discount Margin, ...
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0answers
202 views
pricing option with two stocks
Let $\left(S_t^{(1)}\right)_{t\ge0}$ and
$\left(S_t^{(2)}\right)_{t\ge0}$ be the price processes of two stocks
with dynamics
$$ \begin{align}
& dS_t^{(1)}=\sigma_{11}S_t^{(1)}dW_t^{(1)}
\...
2
votes
0answers
625 views
Pricing of European Power Call Option via Black-Scholes formula: reasoning?
I want to price a European Power Call option (without dividend yield) with payoff $\max\{S_T^2-X, 0\}$, where $T$ is the maturity and $X$ the strike.
Let $(S_t)_{t\ge 0}$ be the price process of an ...
1
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2answers
788 views
Pricing Mark-to-Market Basis Cross Currency Swaps and Subsequently Constant Notional
Currently I'm working on my Master Thesis in Quant Finance in cooperation with a company. I would like to thank you very much for your time and help in advance!
In my thesis I want to price Mark-to-...
4
votes
1answer
323 views
Basis swap pricing dynamics
The existence of basis spreads leads to that e.g. a 6M forward rate has a different price than two after each other following 3M forward rates. This due to that the 6M forward rate has a higher credit ...
4
votes
1answer
108 views
Generating a P&L that is linear in the variation on an underlying at no cost
I am actually reading Lorenzo Bergomi's "Stochastic Volatility Modelling" book, and came across this bit :
I understand everything up to (5.5) included. But I don't see the point in mentioning the ...
2
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0answers
88 views
R/fOptions Binomial Options Pricing warning message
Trying to compute theoretical prices for a set of options using the R package fOptions:
...
5
votes
1answer
136 views
Change of measure's impact on parameter value
This is a follow-up question on Price of a prepayment-based claim.
Consider a zero-coupon bond of maturity $T$ with price $P_0$ for which the borrower can reimburse the principal $N$ at any time $\...
