# Questions tagged [pricing]

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### Which curves to use for different swaps?

How do we determine which curve to use for pricing different swaps, for e.g. I don't understand how following come: Interest Rate Swap (USD) Fixed: USD Treasury Floating: none CCS (USDINR) Fixed: ...
30 views

### Pricing of a tracker certificate on basket of index futures

i'm new to Quant Stack Exchange but i already saw that the quality of the answers is outstanding, however, i have a question for which i haven't found an answer yet: I'm looking for a pricing model/ ...
4k views

### FX Delta Conventions

I'm currently reading Iain Clark's book Foreign Exchange Option Pricing and I got stuck at one sentence in the beginning of Section 3.3 that I feel is important to understand. He writes: FX ...
45 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 ...
39 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 ...
56 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 ...
181 views

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

I have a payoff structure but I do not know the price of the bond. The bond is municipal. What discount rates should I take for each period in order to calculate its fair price?
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 ...
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 ...
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 ...
341 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 ...
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 ...
174 views

### Callable Total Return Swap pricing

I need to price a callable Equity Return Swap by Accrual. ERS has property callable T+1 and I don't get it. Does it mean that when a call happen we fix a price that and pay Accrual the next day? Could ...
36 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 ...
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 ...
146 views

### Graph of a down-and-in barrier option

Here is a graph of Price vs Spot from Joshi's Quant Interviews book, The first line is a down-and-out barrier option and the other one is a down-and-in barrier option. The strike is 100 and the ...
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 ...
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 ...
263 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,...
256 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....
7k 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 ...
440 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 ...
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 ...
109 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 ...
352 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 ...
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 ...
202 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 ...
622 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 ...
137 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 ...
8k views

### How to get real-time data for Fama-French model?

For Fama-French model we need SMB (small[market cap] minus big) and HML (high[book-to-market-ratio] minis low). I want to ...
720 views

### Turnbull & Wakeman Asian - not Edgeworth?

My understanding is that Turnbull & Wakeman derived an approximation formula for continous arithmetic Asian option using Edgeworth series by matching the first two moments. However, in the book ...
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 ...
223 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
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 ...
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. ...
149 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 ...
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 ...
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 $K=150$)...
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 ...
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 ...
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 ...
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 ...
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 ...
5k views

### What is the Risk Neutral Measure?

What is the Risk Neutral Measure? I don't believe this has been answered on the internet well and with all the parts connecting. So: What is the risk neutral measure/pricing? Why do we need it? How ...
49 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 ...
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, ...
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 ...
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 ...
### 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 ...