We’re rewarding the question askers & reputations are being recalculated! Read more.

# Questions tagged [probability]

The tag has no usage guidance.

238 questions
Filter by
Sorted by
Tagged with
212 views

### Conditional Probability - Geometric Brownian Motion

Background I am trying to find a way to price a variant of a gap option by using closed-end expressions. What makes this option a bit tricky is that it can be exercised at four predetermined dates (t=...
338 views

### From Butterfly Price to Probability of $S_T$ Falling within a Range

If a butterfly in the limit represents a probability (by the Breeden-Litzenberger result), what can be said about the relative likelihood of a random variable $S_0$ from the price of a vanilla-option ...
44 views

### How skew in vertical put spreads change the payoff?

An spx four strikes wide Put Spread from at the money has a payoff ratio of 1 to 2 meaning if the Premium on the spread is \$10 your reward is \$20; yet the corresponding Call Spread with the same ...
397 views

### Dumb question: is risk-neutral pricing taking conditional expectation?

Dumb question: is risk-neutral pricing taking conditional expectation? $\tag{1}$ In trying to recall intuition for risk-neutral pricing, I think I read that we should price derivatives risk-neutrally ...
277 views

### Can the concept of negative probabilities be used to price a call option?

Edit: I'm a dumbass. The thing below is supposed to be just the motivation of asking. I want to ask for below and in general, hehe. Assume that we have a general one-period market model consisting of ...
127 views

### Probability of Implied Volatility Move [closed]

I want to see the probability of Implied Volatility of an underlying moving up or down from its current position. Would it just be 50% probability of going up and 50% of it going down? Because I've ...
243 views

### Detecting butterfly spread arbitrage for American options through European option prices

It's easy to demonstrate that if European option prices are concave with strike, then an arbitrage exists. For example, the risk-neutral probability density is the second derivative of European put ...
66 views

### How to determine the default probability of a county in a bond that is not in its native currency?

Disclaimer: This post is cross posted in here also. Consider the following case: Country P uses the currency Euro and gives p percent interest on a one year bond issued in Euro. Country Q uses the ...
48 views

93 views

### Distribution in Heston

$$dV_t=-k(V_t-1)dt+ \epsilon\sqrt{V_t}dW_t$$ $W_t$ is wiener process and the rest is just some parameters. For $T_{i+1}>T_{i}$ how do I find the expectation and variance of $V_{T_{i+1}}$ ...
71 views

### Uniqueness of data metric [closed]

Is there a metric that calculates "uniqueness of data"? For example if i have two sets of 200 observations, DataSet 1 has 70 unique values but 4 values take up the next 130 observations. DataSet 2 ...
2k views

### KMV-Merton Probabilties of Default vs Moody's EDF

Moody's used to publish probability of default estimates from their Moody's EDF model, but they have temporarily discontinued it. I understand that the Moody's EDF model is closely based on the Merton ...
160 views

### How to compute SABR's probability density function

I am trying to compute the probability density function of the forward rate implied by the SABR formula approximation in order to see how the density implied by the approximation has negative ...
228 views

34 views

### Binary probit model: relevant which outcome is 1?

I'm currently working on predicting bear and bull phases with a dynamic probit model in the form of $y_t=\beta_1X_t+\gamma_1y_{t-1}+\epsilon_t$. So far I've written all my code in matlab and it works ...
137 views