Questions tagged [pricing]

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53 views

Linear factor representation Pricing kernel APT

following Cochrane (2005) and other insights, we know that under Arbitrage Pricing Theory (Ross, 1976), if investors believe returns follow a linear multifactor structure of the form $x^i=r^f+\sum_{j=...
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1answer
47 views

Market Maker option's pricing with reference spot

When a option's market maker receives a quote from a broker, usually the underlying spot prices is locked with a reference. Let's suppose the following example: Broker: "Buy 10k call 2800 of ABC ...
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1answer
48 views

Quantlib: How do I price a bond after having built a term structure

I below are my codes using QuantLib to build a term structure What I would like to do is use that to price any hypothetical bond lets say startdate : 8 Feb 2016 end date : 8 Feb 2021 coupons : 10% ...
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0answers
68 views

Operator splitting method on three assets black scholes equation

Currently I am studying finite difference method on derivatives with three (or more) underlyings and little bit confused on operator splitting method because two papers have different result. For the ...
2
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1answer
99 views

Modelling Geometric Browian Motion price model with stochastic volatility

I'd like to generate scenarios (simulate several paths of the process) for several stocks using multinomial Geometric Brownian Motion under Stochastic volatility assumption. I'm going to use it in my ...
8
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2answers
391 views

What is the industry standard pricing model for CME-traded Eurodollar future (American) options?

The CME-traded Eurodollar futures option is an American option. What is the industry standard pricing model for this product? Does the industry practice to treat CME-traded Eurodollar futures ...
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0answers
26 views

What is a succinct description of the difference between neutral and indifference pricing as per Srdjan Stojanovic?

His book (Neutral and Indifference Portfolio Pricing, Hedging and Investing With applications in Equity and FX, by Srdjan Stojanovic, Springer, 2011) is not quickly readable. Wikipedia entry on ...
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3answers
345 views

Which measure is used to price a swap?

When we value the floating leg of a standard vanilla swap, we replace the expectation of the future floating rates by the forward rates known today. However my understanding is that the forward rate ...
4
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1answer
174 views

Why risk-free interest is needed for Margrabe's Formula?

The source code for Margarble's formula in QuantLib is here. The implementation requires a forward price be computed: ...
3
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1answer
80 views

Time of Nasdaq daily close price

On the Nasdaq website It Is stated that the market closes at 4:00pm. However I have historic intraday minute prices and I can see that that are minutes with prices after 4:00 PM (I am assuming its ...
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0answers
57 views

Confused about discretization

I am reading a paper here: https://pdfs.semanticscholar.org/5f91/2d46b02b03230a4ffaaa42d655b2b6147d56.pdf The following is my confusion. The paper has the following continuous time model for the price ...
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3answers
538 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 ...
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2answers
64 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 ...
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0answers
34 views

How could the WTI future price be as low as -40 on Apr 20? [duplicate]

Were there any known high-frequency firms suffer from it? As the brent price stays normal, I believe that many algorithms would have recognize that price different as an arbitrage opportunity. For a ...
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1answer
81 views

Pricing multidimensional equity

How would you price \begin{equation*} \mathbb{E}^{Q} \left[ e^{-\int_{0}^{T}r_{s}ds} f \left( S_{T_f}^1, S_{T_f}^2 \right) | \mathcal{F}_{0} \right]\end{equation*} with $T_{f} \le T$ and $S^{1}, S^{...
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1answer
75 views

FX Forward rate agreement valuation in quantlib

I am trying to value an FRA in quantlib Python using the below code: ...
3
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1answer
81 views

How to do Fama French (1993) cross sectional regressions? A few questions

I am still relatively new to asset pricing factor models and have a few questions about my current empirical study. I would be very pleased if you could help me. I have created a new factor which I ...
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1answer
105 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?
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1answer
2k 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
48 views

Options pricing model inversion

He cited about Roll's compound formula for finding the lead-lag effects between stocks and options. I have a similar data for National Stock Exchange's Index, NIFTY but it's daily, not intra-day. I ...
9
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1answer
334 views

Numeraire correlated to the traded asset

Edit: is there any work published on Numeraire being correlated to one of the traded assets? I haven't found a single paper online on this topic. If anyone has links to any resources on this topic, ...
2
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1answer
214 views

Black and Scholes pricing

I want to price B&S with $S_t$ stock price that has payoff, $h(S_T)=(S_T^3-S_T^2)^+$. Would it be wrong if I solved as $(S_T^3-S_T^2)^+\implies (S_T^3\geq S_T^2) \implies (S_T\geq 1) \implies (S_T-...
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58 views

Stock Price as Numeraire, Two Stocks & One Money Market Account

We have two uncorrelated Stock price processes and the classical Money-Market (MM) account. Under the MM Numeraire, both stocks are Martingales when discounted by the MM, as usual. Question: I would ...
2
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1answer
138 views

How to get the price of a bond if the yield is given or viceversa in QuantLib

For example Can u provide with a detailed example please if i have ( maturity, issue date, coupon, frequency, days_countbase, (price or yield) what is the (yield or price given this information. ...
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5answers
10k views

Calculate Average Price, Cost, (Un)Realized P&L of a position based on executed trades

We have built an algorithmic trading software and need to calculate the following parameters for each position in our portfolio. Average Price Cost Realized Profit & Loss Unrealized Profit & ...
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1answer
65 views

Pricing coupon bond on weekly basis effectively

I have a coupon bond with $NV=20 000 000$ and coupon $4\% p.a.$, assumed the coupon is paid annually (I don't have this stated explicitly). Let's assume, the starting date is 27.4.2015, so the first ...
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1answer
101 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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1answer
81 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 ...
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0answers
51 views

Double jumps stochastic volatility model (SVCJ, Duffie et al, 2000) - characteristic function for VIX

Currently I am working at my master's degree paper where I want to evaluate VIX options using stochastic volatility jump models.I got some MATLAB codes for the SVCJ model for the S&P, but as the ...
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1answer
79 views

Risk Neutral Pricing, a quick question [closed]

I am a newbie. The risk neutral pricing has the following formulation: $$P=\frac{\hat{E(d)}}{R}$$, But the discounted expected value has the formulation of: $$P=\frac{E(d)}{R}$$. The text book ...
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1answer
191 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....
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28 views

Bond New issue swap pricing

Hi Im trying to understand the different part of the pricing of swaps for an issuer who want to swap his issuance, resulting in the swap dealer paying fixed. Im a little confused as to how it works, ...
4
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2answers
308 views

How could Renaissance Technologies have near real-time prices on corporate bonds and other debt? [closed]

Julie Segal, What Renaissance Technologies has that you don't..., Institutional Investor, October 17, 2017. Does this just mean they are aggregating data from vendors like MarketAxess? Or is ...
3
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1answer
69 views

How to find an arbitrage when the solution is not obvious (2 assets in a market)?

I am struggling to find an arbitrage in the following configuration. I know how to prove that there is an arbitrage (using the fundamental theorem of asset pricing). So I ve proven there is an ...
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44 views

difficulty pricing options using stochastic volatility

can someone kindly explain why it was difficult to obtain an explicit formula for pricing options under stochastic volatility. Thanks alot.
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47 views

Simple application of the fundamental theorem of asset pricing

From what I understood the fundamental theorem of asset pricing (FTAP) details that discounted asset prices are martingales under the risk neutral mesure. As an example: We consider an ATM call ...
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2answers
143 views

How to price, hedge ESG-dependent products?

I read with interest news about Netherlands bank trading several novel products in which a counterparty pays floating cash flows linked to the counterparty's ESG (environment, social, governance) ...
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0answers
56 views

How to use quantlib Excel for valuation of european swaption with vol surface to calibrate?

I would like to replicate the following Bloomberg pricer in quantlib using Quantlib xl. Is it possible? Thanks
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1answer
466 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 ...
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1answer
96 views

how to price options in reality [closed]

I'm getting to know the Black Scholes model, which apparently is no longer suitable for pricing options on the market. I would like to write a Master's thesis on option pricing but I do not know what ...
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1answer
40 views

Assymmetric Risk Call Option

I'm reading in Radu Tunaru's book "Model Risk in Financial Markets" and he argues that two parties in the financial contract do not have the same magnitude of exposure to model risk. The reason for ...
3
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2answers
181 views

Why is $S(t) = e^{\alpha + \beta t + \sigma W(t)}$ used as a model for prices?

Why is the Geometric Brownian Motion defined as $S(t) = e^{\alpha + \beta t + \sigma W(t)}$ used as a model for stock prices? $S(t)$ has a lognormal distribution which is right skewed. Another problem ...
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0answers
19 views

Arbitrage and dominant strategies : Linear Pricing measure

Given a monoperiodic setting, my professor defines that if there is no arbitrage opportunity, it means that there is no dominant strategy. This is clear. However he defines that if there is NO ...
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62 views

How Can I determine Swap rate?

I should calculate a swap rate of IRS contract by knowing that the risk free rate is $r(0) = 0.5$ and the defaultable rate, $r_1$, evolves in discrete time following a 2 period multiplicative binomial ...
5
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1answer
523 views

Libor to SOFR transition Yield Curve Construction

With the imminent transition from LIBOR to SOFR next year, what are the data points practitioners are using to the yield curve? Also, since LIBOR implicitly took into account credit risk of the ...
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2answers
299 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 ...
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1answer
61 views

Black & Scholes under stochastic interest rate (Vasicek) [closed]

I'm a beginner in Quantitative finance and I'd like to ask you for help about this exercise. I have to price a put option on a risky asset by working under stochastic interest rate, so I have to ...
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2answers
306 views

Pricing In Real Life vs Theory

When selling/buying vanilla call options, do one price them according to some pricing formula (i.e Black-Scholes)? Or is the only point using pricing formulas to find the implied volatility and then ...
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2answers
5k 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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1answer
124 views

OHLC prices after filtering

Assume we have minute-bars of OHLC stock prices. Then, applying Kalman filter to those prices separately, we can remove a measurement noise and obtain the estimates of the states of the price ...

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