Questions tagged [pricing]
The pricing tag has no usage guidance.
385 questions
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Why these formulas for Bond Total Return Swap valuation are different on handling recovery
I studied some bond total return swap valuation. They are very similar but differ in the handling of loss given default and recovery. I feel confused and have no idea why and what’s the economic ...
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68
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How to compare pricing models?
Say there is model A and model B to price vanilla European and American options. Both are calibrated against market prices
How to determine what model provides more accurate prices for either ...
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204
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How are "stock dividends" treated in total return swaps?
To be clear, I'm asking about the corporate action that dilutes the share base by awarding stocks to shareholders NOT the corporate action that awards cash.
As best I can tell, these are essentially ...
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1
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Cross currency Swap Pricing under T- forward measure
Let's assume we are in a frictionless market where the covered interest rate parity exactly holds i.e.
\begin{align}
F^X(0,T) &=X_0 \frac{P^f(0,T)}{P^d(0,T)}
\end{align}
where $X_0$ is the FX spot,...
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Verifying if a Function is a Radon-Nikodym Derivative for changing the numeraire
I am analyzing the following function within a financial mathematics framework:
$$
f(t) = \dfrac{B(S; S) \cdot m(t)}{B(t; S) \cdot m(S)}
$$
where:
$$
B(t; S) := \mathbb{E}_{t}^{\mathbb{P}} \left[\exp\...
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1
answer
179
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Understanding Key Rate Durations in a Swap
As I understand, the Cashflows of a Payer-Swap are nothing else than being long a floating-rate bond and short a fixed-rate bond. So, to calculate the Key Rate Durations of the Swap I should be able ...
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84
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Modeling Yield Scenarios and Curve Shocks for Bonds
I would like to do the following:
Given a basket of bonds I want to generate different yield scenarios at a future time $T$ for the different bonds in my basket. I also want to see how I can shock the ...
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2
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1
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273
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Target Realized Volatility or Realized Variance in Forecasting
There are many academic paper doing volatility forecasts using realised variance and realised volatility interchangeably -- both targeting the proxy estimation of sum of squared returns (realized ...
2
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1
answer
61
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Pricing / valuing anticipated repayment date
I am a long time lurker, and frankly not a quant, but have deep respect for those that are.
I have found myself in a situation dealing with some features on debt that I am trying to figure out how ...
2
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2
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279
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The end of risk-neutral valuation
Risk-neutral valuation grew out of BS constructing market-neutral portfolios of stocks hedged with options. It was a portfolio management problem. In less than a decade, pricing by arbitrage on a ...
- 559
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63
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Approximation of an Autocall (trigger 100%) with ATM options prices
thank you very much for trying to answer this question, and I hope it will be helpful to everyone in my situation.
I am preparing for an interview, and I've come across these three questions on the ...
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1
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74
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How to price a buffet or, how to price a subscription? [closed]
I've been thinking about a problem that may not be so specific lately. How do we price a buffet, or how do we price a subscription service?
In more detail, let's assume that we are a cosmetics ...
- 101
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0
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38
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Callable Bond Delta Profile
I am analyzing a callable bond with 10 Years of maturity coupon paid monthly at market rate plus the spread of 25 bps. The bond has an American Call option embedded. The strike price of a bond option ...
- 1,397
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4
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209
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Why are random coupons not priced using risk-neutral evaluation?
Assume a fixed coupon bond has a coupon which, randomly, is 5 % or 4 %, each occuring with a 50 % probability. The issuer flips a coin on payment date to decide which it should be.
I would value this ...
- 141
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Explicit pythonic building of Flat Forward Curve using Changes assumed from central bank meetings to price FRAs
This question is related to the following questions asked previously, primarily the first:
Using QuantLib to build Flat Forward Curve using Changes assumed from central bank meetings to price FRAs
...
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170
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Confusion About PFE Calculation and XVA Pricing Engine's Exclusive Reliance on Parameter Simulation
Potential Future Exposure (a credit risk metric) is calculated using
$$PFE(\tau) = \text{max}\Big(0, \mathcal{P}_{derivative}(\tau) - CVA(\tau)\Big)$$, where $\mathcal{P}$ is the price / fair value / ...
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1
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Using QuantLib to build Flat Forward Curve using Changes assumed from central bank meetings to price FRAs
What I am trying to do is price EURIBOR6M FRAs using a curve built in quantlib with changes in rate due to central bank meetings.
For concreteness, my goal is to price EURIBOR6M FRAs, say 1x7 FRA, ...
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121
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Master Thesis about Heston vs. Duan option pricing model
I would like to write my master's thesis on volatility in option pricing. My idea was to compare the stochastic volatility model of Heston 1993 with the GARCH option pricing model of Duan 1995. For ...
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142
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Pricing a (general) callable floating rate note
I have a question generalizing this situation: Pricing Callable Floating Rate Note.
I want to price a callable floating rate note, where the coupon can also be capped and the reference index can be ...
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57
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How to use the parity parameter when pricing third-party warrants with BS?
I attempt a second basic question. Let me know if https://money.stackexchange.com/ would have been more suitable for that.
Third-party warrants are very similar to call options. One of their main ...
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Is the sign of the delta-gamma approximation error predictable?
I self-study quantitative finance, but I have a hard time connecting the textbook formula with the market reality and available data.
I use delta-gamma approximation to estimate the price change of ...
- 101
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2
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193
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Survival probability interpolation between two time nodes
In the Open Gamma paper describing the ISDA CDS pricing model, it is mentioned that given the time notes of the credit curve $T^c=\{t_{1}^{c},...,t_{n_{c}}^{c}\}$ and that the survival probability for ...
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Pricing with log-normal interes rate
The annual rate of return in year $t$, denoted as $1+i_t$, where $i_0$ represents the interest rate from $t=0$ to $t=1$, has a log-normal distribution with an expected value $108\%$ and a standard ...
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trade life cycle of a bond from proposal to settlement
How is the trade life cycle of a bond from proposal to settlement, in terms of who does what at a buy-side firm as a part of this process (e.g. at an Asset Manager, Hedge Fund, etc) different from the ...
- 101
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57
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MMF/non-MMF share pricing and interest rate
For equities and bonds there are specific models to determine the intrinsic value of stocks/bonds, respectively, mainly following the idea that the stocks/bonds are worth the sum of all of its future ...
- 101
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186
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How do you calculate the market value of a bond position?
I got this question in an interview - and I answered it in terms of DVO1 and MTM positions in our Order management system. How would you have answered this question ?
...
- 101
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1
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254
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Understanding completeness in this simple one-period exercise
Let's consider a one period model (t=0, 1) with one risk-free asset that yields r, and one risky asset. $S_t^j$ will be the value of the asset j=0,1 at time t=0,1, where j=0 is the risk-free asset and ...
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311
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Find the right module for CDI DI BRL swaps valuation Quantlib
I'm trying to find a way to price BRL CDI Swaps with Quantlib but I can't find any solutions so far - so I was wondering if anyone encountered this issue:
I don't see any solution on Quantlib. I ...
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253
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Quantlib FRA and interpolated rate in Swaps vs BBG valuation
I am building a CZK swap pricer on quantlib, and I am trying to understand my differences with Bloomberg pricing.
I believe the way I set up my FRA is wrong, the reason is because even though I match ...
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1
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318
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Quantlib - mismatch with BBG Swap
I'm trying to price a CZK swap via Quantlib with BBG data, so far nothing complicated but I can't seem to match the floating leg cashflows, and NPV, when I price my swaps, even if I find the right Par ...
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156
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Pricing an option with a certain payoff
Suppose an option with a payoff function
$$ \max((1+k)S_1,kS_2) $$ where $S_1, S_2$ are stock prices and $k>0$ is a constant value.
To value such an option, one would decompose this payoff function ...
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Pricing of a non-standard swap contract
Here I have a swap product, where a fixed and floating interest rate will be applied on notional amount. Fixed and floating legs involves 2 currencies, one of them is delivery currency (e.g. USD) and ...
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In the context of derivatives pricing, what are Pillars and Marking?
as the title says, I've heard of the terms 'Pillar' and 'Marking' in the context of fitting volatility smiles and derivatives pricing in general and I'm having difficulties finding definitions on ...
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Convexity Adjustment for Average Rate IRS
Suppose that one want to price an Interest Rate Swap with daily averaging, i.e. the floating leg looks like
$$Floating~Leg = \sum\limits_{i=1}^N P(T_i)\cdot\frac{\sum_{k=1}^m F(t_k, t_k+\delta)}{m}, ~...
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Carry for an Interest Rate Swap
I don't get why for calculating the carry of a spot starting swap I need to adjust the difference between the fixed rate and fixing by the Dv01?
For example if I receive in a 5y swap and want to ...
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0
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Par par asset swap counterparties in practice
In practice is it possible to enter into a par par asset swap where the bond is purchased from counterparty A and the swap element is conducted with counterparty B?
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Black-Karasinski & Market Price of Risk [closed]
I have implemented the Black-Karasinski model using trinomial trees and calibrated following Brigo (2007) page 29. However, the results do not fit the interest rate curve practiced in the market. As I ...
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How to price an inflation caplet/floorlet using Bachelier Formula?
I am trying to recalculate the prices of inflation cap in order to calibrate a SABR model.
I have this table which gives me the normal volatilities values in % for the different strikes and different ...
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1
answer
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Incorporating the I-Spread and Parallel Shift for Accurate Bond Pricing
I am currently working on pricing bonds and intend to utilize the S490 curve sourced from Bloomberg. This curve is constructed exclusively using swap rates. However, I have encountered challenges when ...
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What are the quantitative models for modelling the SOFR rate, the IR products when Libor rates end [duplicate]
Many year ago, I worked on the pricing of IR products (Floating rate swap, CMS swap, Cap, Floor,...)
Libor rates are now replaced by SOFR rate. I would like to know
What are the new IR products (...
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Quantlib SOFR swap repricing across 2 different dates
I am trying to price SOFR swaps in two different dates (the same swaps, just different curves and dates)
This are my initial parameters:
...
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277
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Discounted price of an option
If the discounted price of any asset is a martingale under risk neutral measure, why is $E^Q[e^{-rT} (S_T-K)_+ | F_t]$, not merely $e^{-rt} (S_t-K)_+$?
This is something I wanted to clarify, since ...
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673
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How to price very short dated options?
I was wondering if there is any industry standard in pricing very short dated options, from say 6h options down to 5 minute options.
My thinking is that as time to expiry gets shorter and shorter, the ...
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119
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Options skew: when is a perfect fit desirable?
I'm still troubled by a rather basic question, namely when is a perfect fit to the vanilla skew really necessary?
I think if you are trading vanilla options and/or Europeans that can in theory be ...
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3
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859
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pricing in the case where payment currency and collateral currency are different?
I'm asking for the curve construction of the discount curve in the case where payment currency and collateral currency are different.
If I refer to BBG, in the case of a USD swap collateralized in EUR,...
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92
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Python Quant Lib - Bond Pricing ex coupon period [closed]
were wondering If anyone knows how to use rate bonds on Python Quantlib, that have
an ex-coupon period.
For example the link below shows the construction of such a bond in the c++ quantlib
using
...
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Questions about the replicating portfolio in the binomial model
I'm starting to teach myself quantitative finance and I've got several questions (marked in bold) regarding the replicating portfolio of a security in the binomial model. I'm following, among others, ...
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463
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Calibration of Local or Stochastic Volatility Models to Prices vs Implied Volatilities
As the title suggests, what is the difference between calibrating an option pricing model (say the Heston model) to market option prices instead of computing their implied volatilities using Black-...
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Basic question/clarification about the LOOP
This is a very basic question/comment regarding the way that the LOOP is stated in the book "Dan Stefanica - A Primer for the Mathematics of Financial Engineering". The proposition goes as ...
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How to compute Vega in the Heston Model
I am computing European Option Sensitivity as: Delta, Vega and Gamma. I am using Heston Model to simulation spot and the variance.
While computing Delta and Gamma, I understand, we need to bump spot ...
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