2
votes
Accepted
Numeraire flipping and currency FX options
Looking at the example above after the edits. The short answer is you need to multiply by $K$ as well as the FX rate.
For the longer answer:
Lets let $D^e, D^u$ be the discount processes in the ...
- 704
2
votes
Accepted
Use of Non-Risk-Neutral Measure for Pricing Derivatives
After more research and considering Kurt's comment, I believe I have found a reasonable explanation for why it is appropriate to use the measure $\mathbb{Q}_1$ to price derivatives. First, since we ...
- 41
1
vote
Accepted
FX Binary Option and differences in prices based on different numeraires?
I've read through the pages where he discusses this a few times. I think the key is this, although I am not 100% sure if I am interpreting his phrases correctly.
(Note: All options/payoffs I'm ...
- 704
1
vote
path dependency and dollar gamma
What you have in your portfolio is an incorrectly valued instrument. It is misleading to say it is an option, because the option that we understand is that which is priced correctly. When the PnL ...
- 2,521
Only top scored, non community-wiki answers of a minimum length are eligible