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Results tagged with option-pricing
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user 26242
Questions about models for the valuation of option contracts.
1
vote
Control variate for pricing a best of assets option : $\mathop{{}\mathbb{E}}[ \max ( F^1_T,F...
If the $(F^i_T)_i$ are lognormal, I'd choose their geometric average $\left(\prod_{i=1}^N F^i_T\right)^{\frac{1}{N}}$ because it's lognormal as well and hence the expectation is easy to compute.
If t …
- 2,280
9
votes
Cap/Floor ATM Rate
The question is 1 year-old old but I will answer it anyway.
The ATM level (ATMF: at the money forward to be more precise) is the one giving you the same price for call and put, or in this case, the sa …
- 2,280
2
votes
Accepted
Pricing perpetual American put option when interest rate is equal to 0
The PDE doesn't equal zero when I replace with the expression of $V(S)$ you gave. Threre is an issue in your PDE's the boundary conditions and its solution.
Let's start with the regular american put …
- 2,280
4
votes
What is the numeraire for the real world measure $\mathbb{P}$?
To build on Antoine's answer (which covers the case where the market consists only of a stock $S$ and a risk free asset $r$). In the general case, if the real world measure $\mathbb{P}$ numéraire depe …
- 2,280
0
votes
Accepted
Calculating implied volatility from moneyness/volatility values for date
The interpolation of the implied vol surface is no easy task unfortunately and it is subject of extensive research.
This is because you want the vol surface to have some nice characteristics, e.g.: b …
- 2,280
5
votes
Accepted
QuantLib Python: caplet/swaption pricing under dual curve
Discount vs forward estimation curve
The YieldTermStructureHandle passed to BlackCapFloorEngine corresponds to the discount curve, while the one passed to IborIndex corresponds to the forward estimat …
- 2,280
3
votes
CVA formula for a call option
No need to overcomplexify things. The CVA gives you simply the amount that you expect to lose if and when your counterparty defaults, discounted to today.
In your case, you are buying an option. So, …
- 2,280
1
vote
Accepted
What are the underlying events that the random variables map to the real line in the derivat...
Think of it this way, $\Omega$ elements are the states of the world. This means the set of {macroeconomic data, geopolitic situation, weather, fundamentals of the firms, sentiment of market participan …
- 2,280
3
votes
Accepted
EPE for interest rate swap
The expected positive exposure
The expected positive exposure of a swap (or any other type of asset) at a given date $t_i$ is the expectation of the positive part of its value at that date (as that's …
- 2,280
18
votes
Accepted
Problems with local volatility models (vs stochastic volatility models)
1. What does it mean by the vol surface is the current view of vol?
The local volatility model is calibrated to vanillas prices (and equivalently their implied volatilities), which reflect the market …
- 2,280