# Questions tagged [pricing-formulae]

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34 questions
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### 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 ...
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### Why do we need approximation in option pricing?

We know that we can get a closed form for European option price. And we can calculate directly the normal distribution accumulation. But I saw that people use many approximation methods such as ...
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### Bond and Stock Relationship

Is there any formulair relationship between the price of a corporate bond and the stock on the same company?
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### What is the Most Efficient Way to Calculate the Internal Rate of Return IRR?

I have built a program that prices financial assets and it does this in part by calculating the IRR. The problem is that it does not run as quickly as I would like it to. I currently use the Newton-...
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### Formula for forward price of bond

What is the formula for the forward price of a bond (assuming there are coupons in the interim period, and that the deal is collateralised) Please also prove it with an arbitrage cashflow scenario ...
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### Market Value of a CDS

I need to model the market value of CDS in a portfolio. My current approach is to calculate the present value of the future spread payments - does anybody have a better idea to solve the problem? ...
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### Foward-start option pricing

Consider a probability filtred space $(\Omega, \mathcal F, \mathbb F, \mathbb P)$, where $\mathbb F = (\mathcal F_t)_{0\leq t\leq T}$ satisfing the habitual conditions and is generated by $1 d$- ...
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### 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 ...
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### Is “interest” positive or negative in the “free cash flow to firm” model?

FCFF = net income + non-cash charges + interest x (1 - tax rate) - long-term investments - investments in working capital My intuition is: if the company is receiving interests payments, then the ...
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### How to obtain true probabilities from Black-Scholes?

How to obtain true probabilities from Black-Scholes option pricing equation? Suppose, that we know risk adjusted discount rate for the underlying asset (the drift term in the physical measure) and ...
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### Valuation of a swap where both parties can cancel (not settle at market) with accrual method instead of present-value?

Consider a single-name total return swap (TRS) on some reference asset $S$. For concreteness, suppose the length of the contract is one year with quarterly resets, and the performance of $S$ is ...
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### How to price a forward struck contract today by changing from a $T>T'$ forward measure to $T'$ forward measure at time $t<T'<T$?

Suppose that the payoff of some contract is $V_{T}=S_{T}-S_{T'}$ where $T'<T$ and we want to value the contract at time $t<T'$ (the situation where this arises could be a total return swap, ...
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### Formal proof for risk-neutral pricing formula

As you know, the key equation of risk neutral pricing is the following: $$\exp^{-rt} S_t = E_Q[\exp^{-rT} S_T | \mathcal{F}_t]$$ That is, discounted prices are Q-martingales. It makes real-sense ...
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### in long term options on equities, what is the greek used for security lending rate, and what formula do you use?

in long term options on equities, what is the greek used for for security lending rate, and what formula do you use? would it often move contrary to moves in risk free (ois) and so in practice is it ...
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### Dupire's formula proof

I just have a question for the beginning of a proof: Suppose $\frac{dS_{t}}{S_{t}}=(r_{t}-q_{t})dt+\sigma(t,S_{t})dW_{t}$ with $r,q,S$ stochastic. In the book I read, it is written: We define the ...
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### How to price an exchange option using B&S framework?

Consider a market composed by two stocks whose prices $X$ and $Y$ are given by B&S diffusion: $$dX_t= \mu X_t dt+ \sigma X_tdW_t$$ $$dY_t= \mu Y_t dt+ \sigma Y_tdB_t$$ Supposing the market is ...
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### Predicting Price Movements on a Betting Exchange

On a betting exchange the price (the odds that an event will happen expressed as a decimal, 1/(percentage chance event occurring) of a runner can experience a great deal of volatility before the event ...
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### Question on an approximation in pricing formula

I am reading the book An Introduction to Financial Option Valuation. The following on page 58 makes me confused: For the formula: $\exp \left\{ -1.96\sigma \sqrt{t}+(\mu-0.5 \sigma^2)t \right\}$, ...
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### How do bond pricing formulae differ between the US, UK and the Euro zone?

Let's restrict the scope of the question a little bit: I'm interested to learn about major differences in pricing formulae for nominal government bonds. The pricing formulae for inflation-linked bonds ...
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### Is there a comprehensive reference book on US fixed income conventions?

In Canadian fixed income markets there is a nice handbook called Canadian Conventions in Fixed Income Markets (PDF). It contains detailed market standard pricing formulas for calculating prices, ...
I'm studying for an exam in financial models and came across this question: "An agent with $C^2$ strictly increasing concave utility $U$ has wealth $w_0$ at time 0, and wishes to invest his wealth in ...