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3 votes

Hagan's explanation of the Local Volatility model

The local volatility SDE $$ dS_t = \sigma_{LV}(S_t,t)S_t dW_t $$ is the starting point. (Some absorb the $S_t$ into $\sigma_{LV}(S_t,t)$ but let's keep them separate here). Starting from this SDE ...
0 votes

Pricing options in underlying problem

You look at ETHUSD - how many USD per one ETH. If S=K=20 you get (correctly, if vol is 130%) a price of 1.43. However, if you swap it around to price the option as USDETH (how many ETH per USD), you ...
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3 votes

How do you handle non integer time intervals in Quantlib for options pricing (ie intraday pricing)

QuantLib has support for intraday calculations, but it's not enabled by default because it makes the library slower. Unfortunately, it's not a runtime switch: you'll have to recompile QuantLib and ...
0 votes

How to price a phoenix and snowball type autocallable options?

For anyone who is still interested in this. A snowball can be priced through PDE by using autocallable + doubleNoTouch + doubleOutPut - upOutPut. The solver is easily constructed by playing around ...
1 vote

What exactly are the “bounds” in arbitrage bounds?

What exactly are the “bounds” in arbitrage bounds? The bounds refer to price levels for the combination of related tradable instruments (spreads) outside which arbitrage activity switches from ...
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0 votes

Local v/s global calibration for a Bermudan Option (calibrate co-terminals vs entire matrix)

Firstly, we should acknowledge the fact that off-diagonal vols should be part of the drivers of the Berm value. Pls refer to the Bible: Andersen and Piterbarg's book. By calibrating the model solely ...
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0 votes

What exactly are the “bounds” in arbitrage bounds?

Bound is the limit within which arbitrage opportunity opens up. If the charges are frictions are more the bound is larger and chances of arbitrage are more. So ideally the charges if kept well (read ...
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