New answers tagged option-pricing
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How to price a futures spread option?
Surprised to see so many bad answers here. The comments on the question are good however.
With strike=0, the pricing formula is known as the Margrabe formula, it is Black-Scholes using one of the ...
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Price Option B Knowing The Price of a Similar Option A
Solution:
I've found the answer to this.
Assuming $r = 0$ and using Black Scholes:
For our 25-strike call option, we know that
$$
20N(d_1^c)-25N(d_2^c) = 0.90, \text{ where } d_{1,2}^c=\frac{\log{20/...
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Price Option B Knowing The Price of a Similar Option A
Welcome Kai, I am Kai. Hopefully this answers your question?
A Review on IV Calculations
https://www.sciencedirect.com/science/article/pii/S0377042717300602
I don't think there are exact mathematical ...
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Kou model — solving PIDE for European and American options in Python
The issue I described in my initial question is linked to the integral term. In the paper, this term is multiply by $ \theta \Delta \text{t} $ but this is only the "implicit" part of the ...
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How to get the fair value for an option with variable strike?
You need a corporate finance type analysis for this. I am assuming you are valuing that option for a PE company or something of that sort.
Create scenarios for the company (revenue, cost, margins, ...
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Pricing look-back option
This problem is very strange, because the Smin can only be taken across a single path. For example, if you had say 100 in Dec 2020 and 105 in Jan 2021, the Smin will be 100. However, if you had 95 in ...
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Closed form / analytical solution for bespoke (but vanilla) Option
It is the same a option spread:
selling put strike at N+S_0 and buying put at strike S_0
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Closed form / analytical solution for bespoke (but vanilla) Option
I may have misunderstood the question, but it seems like this payoff is identical to being short the S0/(S0+N) European put spread? If ST > N+S0, the payoff is 0. If ST < S0, the payoff is -N. ...
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Closed form / analytical solution for bespoke (but vanilla) Option
I am not sure what your question is actually, but it seems to me that the payoff is just a compound option - short European call (MIN function on the value of a European call with strike N) on a long ...
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Option pricing under distribution assumption
After reviewing further literature, I have come to the conclusion that indeed this method gives the correct answer. This thought process can be used to derive BS-formula, given the (risk-neutral) ...
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Accepted
Floor vs Receiver Swaption with Equal Strike
This is a classic question and has been asked/well-addressed several times in this forum in prior answers. Suffice it to say, a $K$-strike receiver swaption $\leq$ a $K$-strike floor and this ...
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Floor vs Receiver Swaption with Equal Strike
For single curve pricing (same funding/discounting and forward curve), with index $L(T_{i-1},T_i)$ and its $T_i$-forward expectation $F(T_m,T_{i-1},T_i)$ (forward rate of the index as of $T_m$), we do ...
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Floor vs Receiver Swaption with Equal Strike
I'd say the floor should definitely always be worth more than the swaption.
The vol on the swaption is an average of the expected vol of forwards (averaged to some extent). Intuitively it makes sense ...
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Configuring barrier option in Quantlib-Python
I think what you're looking for is the ql.PartialTimeBarrierOption class which prices windowed barriers.
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Accepted
How can I price this option?
A butterfly (option) is an option strategy with the payoff structure like below (disregard the axis labels, just take note of the structure):
There are 4 ranges you mentioned in your question:
$0 \...
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Accepted
Replication of the payoff of a chooser option
Consider a European chooser option which allows you to choose at time $\tau$ if you want to receive a put option and call option with maturity $T>\tau$.
At time $\tau$, using the put-call parity, ...
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