3
votes
Accepted
Options market making process (step-by-step)
It's not clear from the question, but there are two scenarios:
1/ you have an actively traded and well-established options market in which you're going to get involved as a new participant and take on ...
- 996
3
votes
Decomposing option payoffs
A good strategy to find the decomposition is to first look at the graph of
$$
\max(\min(S-1,2-S),0)\,.
$$
It looks like a
long call with strike $1$ plus
2 times short a call with strike $1.5$ plus
...
- 1,958
2
votes
1y10y vs. 10y1y Swaption
This is an old but nice question and already has a good answer. A quick way to think about it is using the old "trader's formula" for a (ATMF) swaption: $$c\equiv 0.4 \sigma\sqrt{t}\cdot ...
- 996
1
vote
Increasing or decreasing BS-formula respect their parameters
In both cases, for European options, it's a matter of determining whether the first derivative of the call price w.r.t. the parameter is always positive or negative. That said, intuition and good ...
- 176
1
vote
How to price an exchange option using B&S framework?
I think there are 2 ways to get the answer. First way is what Gordon said. But when I first saw his answer, I didn't know why he defined Radon–Nikodym like that, so I thought about it for a long time, ...
- 11
1
vote
Accepted
Vanna Volga Price of an Up and In Put
I do not think you should (can) use the opposite probability (going from p touch to p no touch) because there exists a so called In-out parity: $$European \ vanilla\ option = European\ KI + European\ ...
- 7,659
1
vote
Calendar spreads under black scholes world
In commodities, it's not necessarily arbitrage.
In the example of oil, if oil has a very low price for delivery in March and a very high price for delivery in April, you may in fact be able to lock in ...
- 176
1
vote
Forward Black Implied Volatility For Within Risk Neutral European Option Pricing
The 'model free forward implied volatility' is pretty useless for your purposes. First of all, it doesn't say anything about the price of future IVs, which you need, and worse it's pretty much ...
- 1,594
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