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4 votes

Why do one's current holdings matter when selling calls?

Another way to look at it is that with a covered call, the stock is already in the box and so if they are called away from you, you will not have to buy the stock in the open market and therefore have ...
AlRacoon's user avatar
  • 6,252
3 votes
Accepted

Deriving eq. 5 in Carr & Madan 1998

Your problem is in the $A$ term. Using your notation, you should have $$ d h(t, F_t) = \dfrac{\partial h}{\partial t} dt + \dfrac{\partial h}{\partial F_t} dF_t + \dfrac{1}{2} \dfrac{\partial^2 h}{\...
KT8's user avatar
  • 855
3 votes

Why do one's current holdings matter when selling calls?

A (short) naked call is a bearish trade (seller makes money in the form of premium if asset price falls) while a covered call is bullish trade (seller makes money if asset price rises). In this sense, ...
user35980's user avatar
  • 1,366
2 votes

Why do one's current holdings matter when selling calls?

The fact that you own the shares provides a hedge against losses on the call if the stock rises. And hedging is important in options trading. This is a very popular strategy (covered calls) and ...
nbbo2's user avatar
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2 votes
Accepted

Derivation in Jaeckel's "By Implication" paper

As you mentioned, we know the Abramovich-Stegun approximation for the CDF $$\Phi(z) = h(z) − \dfrac{\varphi(z)}{z} \left[ 1 - \dfrac{1}{z^2} + \mathcal{O}\left(z^{-4} \right)\right], \quad \text{for} \...
KT8's user avatar
  • 855
1 vote

The partial derivative of a call option with respect to $t$

If you want the full dependency on the time t of a process, as the process moves forward, you have to calculate and study the full Ito derivative. But regarding your question : It depends on what you ...
Jesper Tidblom's user avatar
1 vote

Infer implied volatility skew/smile from implied distribution

It looks like your approach to calculating IV is generally on the right track. However, to ensure accuracy and address any discrepancies in the implied volatility smile you're observing, I would ...
Theo's user avatar
  • 113
1 vote
Accepted

Who exercises the termination in an early termination clause on a swap

The break clause is contractual. Meaning that potential future exposure calculations can be made based on the swap terminating at most in 5y time. Without the break clause this would not be ...
Attack68's user avatar
  • 9,994

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