# Tag Info

### How to derive the price of a square-or-nothing call option?

I provided an answer, based on an elementary approach, to an exactly same question yesterday. However, that question has disappeared, even though I like to keep a record for what I wrote. I would ...

### How to derive the price of a square-or-nothing call option?

See this excellent paper by @MarkJoshi which defines/discusses the use of power numeraires. Starting from a dynamics specified under the risk-neutral measure $\mathbb{Q}$ \begin{align} &\frac{...

### Contribution of an asset's variance to portfolio variance

In this answer, I am assuming that you want to keep correlations constant. To begin with, note that the $N\times N$ covariance matrix $\Sigma$ with element $\Sigma_{i,j}=Cov(x_i,x_j)$ can be written ...
Accepted

### Boundary conditions Heston's stochastic volatility model

You can't really derive or prove boundary conditions. You impose them and try to economically motivate them. Let's consider a European-style call option and go through the boundary conditions step by ...

### Clarification on Paul Wilmott's derivation of Ito's Lemma

Given my earlier comment, the only open question is how $\frac{1}{2}\frac{d^2F(X(t))}{dX^2}\delta t$ becomes $\frac{1}{2}\int^{t+\delta t}_{t}\frac{d^2F(X(\tau))}{dX^2}d\tau\,.$ A more standard proof ...