Questions tagged [pricing]

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6
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0answers
139 views

The concept of an incomplete market

While skeeming the relevant literature and web-sites I noticed that mostly the concept of the incomplete market is reduced to the following statement "A market is incomplete if there are more ...
5
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230 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)} \...
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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 ...
3
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0answers
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 ...
3
votes
1answer
169 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 ...
3
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0answers
449 views

“Stable-Floating” model for non-maturing deposit for FTP purpose

Non-maturing deposits (NMD) is a deposit without maturity date. The deposit rate is normally low. Banks could adjust the rate at any time. The customer can withdraw without penalty, however, in real ...
3
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0answers
220 views

Stochastic discount factor (aka deflator or pricing kernel) and class D processes

When (under what assumptions on the model) does a Stochastic Discount Factor need to be of Class D? What would be the implications if it was not? Is it connected to one of the no-arbitrage notions?
2
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0answers
23 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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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. ...
2
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0answers
503 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 ...
2
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0answers
1k 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 ...
2
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0answers
53 views

Equity protection and butterfly certificates pricing

Certificates issued by famous industry names are usually made up by a combination of a fixed income instrument and some vanilla and exotic options. I am looking for something which explains: how to ...
2
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0answers
384 views

How to calibrate volatility surface for Interest Rate Cap&Floor pricing

I'm using Black model to do interest rate Cap & Floor pricing. The volatility is determined by using the bootstrapping methodology. However, afterwards, how should I do the calibration, or ...
2
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0answers
910 views

How to price zero coupon bonds with the Monte Carlo method?

Im trying to calculate monthly ZCB bond prices with a fixed maturity T, over a period of months via Monte Carlo methods. Here is my attempt: For the first month, the price is $P_{t_0}(0,T) = E[exp(-...
2
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0answers
107 views

How will the European requirements for prudent valuation affect derivatives pricing?

The European Banking authority has published the "EBA consults on draft technical standards on prudent valuation". How will these requirements for prudent valuation affect derivatives pricing, if at ...
2
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0answers
86 views

Changes to option valuation for dollar-pegged underlying

In Russia, options on futures on the RTS index are priced in points instead of currency, with points being directly related to the value of the US dollar such that, for example, if the dollar rises, ...
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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 ...
1
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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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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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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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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 ...
1
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0answers
69 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
152 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 ...
1
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2answers
291 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 ...
1
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0answers
150 views

R/fOptions Binomial Options Pricing warning message

Trying to compute theoretical prices for a set of options using the R package fOptions: ...
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0answers
34 views

Simulating Asset Prices by Independently Simulating Supply and Demand

If I have an asset, whose supply is generally mean-reverting and whose demand is generally cyclical, could I somehow simulate / project the supply and demand levels across multiple discrete time ...
1
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0answers
78 views

Estimation of Affine Term Structure Model

In this paper the estimation of Affine Term Structure models via ML is discussed. In the Affine $N$-factors model the price of the bond is $$ P(X_t,t,T;\theta) = \exp(-\gamma_0(T-t;\theta)-\gamma(T-...
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0answers
32 views

Methodologies behind shocking a composite index instrument, what assumption distinguishes these?

Suppose I have a composite index (rebalancing or non-rebalancing) that at present time has some base value $B_{\text{base}}$ in some base economy. I am in the process of shocking the economy on which ...
1
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0answers
67 views

Issue on pricing bond using RQuantLib

trying to pricing a simple bond using RQuantLib, but cannot get the right values. For example, consider a bond with 2% annual coupon rate and flat interest rate of 3%, a 5 year maturity, and \$100 ...
1
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0answers
64 views

Is there anyone tried to use simultaneous stochastic differential equations?

I am looking for some examples or attempts of using simultaneous stochastic differential equations for financial analysis but there has been none so far. Is it just so nasty to apply such thing in ...
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0answers
599 views

PDE vs TREE vs MC vs Analytical

One what basis the pricing model can be differentiated for particular trade pricing. For exapmle why PDE or Binomial tree or MC or Analytical method will be consider for pricing any trade. Question ...
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0answers
168 views

Black Scholes Model Replicating Strategy Delta Hedged Exam Question

A share is currently priced at 640p. A writer of 100,000 units of a one year European put option with an exercise price of 630p has delta-hedged the option with a portfolio which holds cash and is ...
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0answers
35 views

Total demand under logit model

The setting is simple, i.e. formula for demand of service/product is linear $$ d = \alpha - \beta p $$ where $ \alpha $ is maximum demand, $ \beta $ is some coefficient, and $ p $ is price. There ...
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0answers
2k views

Exporting Time Series Data For Securities Prices From Bloomberg to Excel

I have a list of securities over a thousand entries long that I want to construct a time series of prices for over a specified historical period (e.g. 2/01/10-2/20/10). Doing this manually would take ...
1
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0answers
80 views

Incorporating a stochastic correlation structure into a multi-factor model

I am considering extending a multi-factor fixed income stochastic model (e.g. LIBOR-Market) to use stochastic correlation matrices instead of determinstic ones. For pricing instruments with short ...
0
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0answers
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 ...
0
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2answers
121 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 ...
0
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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 ...
0
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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....
0
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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?
0
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1answer
216 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)...
0
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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?
0
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0answers
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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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 ...
0
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0answers
62 views

how to understand the zero vol condition in Heston stochastic vol model

I can't understand one of the boundary conditions in Heston's model: $$c(t,s,0) = (s-e^{-r(T-t)}K)^+$$ Why the current vol is zero can deduce such result. here $c(t,s,v)$ $s$ is current price and $v$ ...
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0answers
366 views

Risk neutral pricing - Example from a book is correct?

I found the following example in a book on Model Risk, while trying to explain how risk-neutral pricing takes properly into account the risk involved in different investments. The Example is this. ...
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0answers
129 views

hedging of a spread option with call

We have 2 underlying $S^{1}$ and $S^{2}$ with BS dynamic under the risk-neutral measure (r constant...) I found the (big) PDE satisfied by the price function $u(t,x,y)$ of a call spread whose payoff ...
0
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0answers
84 views

Benchmarking option pricing under stochastic interest rates

I priced a long-term option (10 or 20 years) using two different models: one assumes constant interest rates, the other assumes stochastic interest rates. Is there a way (e.g. a benchmark) to ...
-1
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1answer
148 views

Pricing of Interest rate swap with start ex. 01/06/2015 to 03/06/2015 - 2 extra days? Change discount factor and fixed payments?

I hope you can help me. So let say we have an interest rate swap, with the following characteristic: Start in 30/06/2015. End in 02/07/2019 It has fixed payment every year, and floating every ...