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Recently because of some personal reason, I tried to price Snowball Autocall using MC and PDE, assuming single underlying. 12 months Snowball, Monthly autocall observations, Daily Put Down & In. Payoff: if Autocall, then 100% principal + autocall coupon if Knock in and No Autocall, then client lose because of short put if No autocall and No Knock in, ...


1

The 50 value you compute is the payoff of your structure if the underlying is worth 100 at maturity. The initial value is the expected payoff of your trade, then, given the decomposition in call and puts, and given the replication principle, it should be: $V_t = Put_0(100,8) + Put_0(150,8) + Call_0(200,8)$, with $Put_0(k,T)$ and $Call_0(k,T)$ the price at ...


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Please correct me if I am wrong. In the US market, there are pricing differences between TRACE trade prices versus Lehman quotes data. From one side, TRACE prices equal quotation midpoints (), where most academics would use the midpoint of the spread as the fair price. From the other side, Lehman quotes bid prices, where bids reveal the preferences from the ...


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I answer from a general discrete time/discrete state model point of view. This includes the binomial tree model as a special case. In finite dimensions, you can interpret asset payoffs and returns as vectors and retreat to linear algebra. Suppose you have $N$ states of nature and $J$ assets. Your payoff matrix is \begin{align*} A=\begin{pmatrix} X_1(\omega_1)...


1

The prices of most coupon-paying bonds (not only corporates, but treasuries, munis, etc) are quoted "clean" (without the accrued coupon) rather than "dirty" (with the accrued coupon). If you agree to buy a bond for a (clean) price $P$, then on the settlement date (generally 1-3 business days after your trade date, depending on the kind of ...


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"How should I define the transaction price of a bond? and how to calculate it?" "The Trade Reporting and Compliance Engine is the FINRA-developed vehicle that facilitates the mandatory reporting of over-the-counter transactions in eligible fixed income securities" (my emphasis) - https://www.finra.org/filing-reporting/trace.


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