SERVING THE QUANTITATIVE FINANCE COMMUNITY

## Search found 97 matches

• 1
• 3
• 4
• 5
• 6
• 7
October 23rd, 2014, 2:52 pm
Forum: General Forum
Topic: How to use stochastic volatility model without option data?
Replies: 3
Views: 3568

### How to use stochastic volatility model without option data?

Thank you for asking.I want to to hedge a commodity call option, but I can only trade the future. I cannot be long or short any other option from the market. I am exposed to risks including the changes of underlying price and its volatility.
October 23rd, 2014, 12:53 pm
Forum: General Forum
Topic: How to use stochastic volatility model without option data?
Replies: 3
Views: 3568

### How to use stochastic volatility model without option data?

<t>As I know it is common to use in-the-counter option data to calibrate stochastic volatility models like Heston or SABR. What if we have no option data? I am also interesting to know the followings:(1) Is there any robust method to calibrate Heston/SABR with historical time series?(2) It is easier...
October 23rd, 2014, 12:36 pm
Forum: Technical Forum
Topic: What can we do during in delta-hedging when volatility increases?
Replies: 7
Views: 4023

### What can we do during in delta-hedging when volatility increases?

<t>I know there is a relationship as below:$PnL=(Option price sold-Estimated Option value)+ $\int_0 ^T (sigma_h(t)^2-sigma_r(t)^2) S^2*Gamma_h*dt$$given in PARAMETER RISK IN THE BLACK AND SCHOLES Model where sigma_h is the sigma used to calculate delta, sigma_r is the real volatility. Assume w...
October 23rd, 2014, 7:41 am
Forum: Technical Forum
Topic: What can we do during in delta-hedging when volatility increases?
Replies: 7
Views: 4023

### What can we do during in delta-hedging when volatility increases?

<t>Yes, you are right. We must loss if the option is sold at volatility lower than the realized one. However, is there any trading strategy to reduce the loss or the standard deviation of final PnL if this happens? It seems there is a stop-loss/start-gain strategy in such a case, given by Peter Carr...
October 23rd, 2014, 2:45 am
Forum: Technical Forum
Topic: What can we do during in delta-hedging when volatility increases?
Replies: 7
Views: 4023

### What can we do during in delta-hedging when volatility increases?

<t>What can we do during in delta-hedging when volatility increases?Suppose that we made a forecast in the coming one year, the realized volatility is sigma_0. Then we sold an option at sigma_0. After a few days we may make a new forecast, in the coming year, the realized volatility should be sigma_...
September 24th, 2014, 2:22 am
Forum: General Forum
Topic: How to quantify loss due to Gamma risk?
Replies: 0
Views: 3455

### How to quantify loss due to Gamma risk?

<t>Now suppose I sold a put option P and perform a delta hedging discretely under the standard Black-Scholes framework. If the underlying suddenly goes down from S0 to St, I failed to change my delta accordingly. Then my loss is (St-S0)*delta(S0)-[P(St)-P(S0)]. If the difference between S0 and St is...
August 20th, 2014, 9:17 am
Forum: Technical Forum
Topic: How to hedge volatility swap?
Replies: 0
Views: 3856

### How to hedge volatility swap?

<t>There are lots of references on pricing vol swap. But I am still confused on how to hedge it. (1) If we are using the typical methods in John Hull?s book, which requires trading a future and many call/put options. How to can calculate delta and hedge it dynamically?(2) If we are using a stochasti...
August 7th, 2014, 1:06 pm
Forum: Technical Forum
Topic: Any other method to reduce option price for investor?
Replies: 1
Views: 3726

### Any other method to reduce option price for investor?

<t>An investor usually finds the price of a plain vanilla call option costs too much. So up-out option can be used if the investor finds the underlying price cannot go too high. Alternatively, the bank can sell a call and buy a down-in put from the investor to reduce the total cost. I can only figur...
July 22nd, 2014, 2:28 pm
Forum: General Forum
Topic: How to price future option with non-negligible margin cost?
Replies: 0
Views: 3770

### How to price future option with non-negligible margin cost?

<t>We are trading options on future. No matter we are long or short the future, we need to pay a margin m (proportional to the future value F) to enter the future position. We need to borrow money at interest rate p to pay the margin. Now suppose we short an option f on future F, and hold delta numb...
May 18th, 2014, 1:11 pm
Forum: General Forum
Topic: How to price a collar more accurately?
Replies: 6
Views: 4811

### How to price a collar more accurately?

QuoteOriginally posted by: daveangelone would normally sell otm calls and but otm puts in a collar.Thank you so much for your reply, but we are on the sell side. our client is more concerned about the commodity price going up.
May 17th, 2014, 12:31 pm
Forum: General Forum
Topic: How to price a collar more accurately?
Replies: 6
Views: 4811

### How to price a collar more accurately?

<t>Now the spot is S0, one wants to sell a call option strike at 0.8S0 and buy a put option at 1.2S0. With historical volatility and small interest, the Black-Scholes price difference between the call and put option is very small.(1) There is no option traded in the market, so it is difficult to obt...
May 11th, 2014, 1:35 pm
Forum: Technical Forum
Topic: Heston VS SABR model
Replies: 2
Views: 6801

### Heston VS SABR model

<t>I got a bit confused about the difference and application of these two implied volatility model.(1) What are the selection criteria of these two models? Under what kinds of situation, which one is better?(2) Heston model is directly designed for spot price, while SABR model is designed for future...
November 30th, 2013, 10:16 pm
Forum: Student Forum
Topic: Change of numeraire in pricing bond option
Replies: 0
Views: 5583

### Change of numeraire in pricing bond option

<t>Change of numeraire in pricing bond optionSuppose the interest rate model:dr_t=κ(θ-r_t )dt+σdW ̂_tBond price with maturity at u, where u>T:P_t (u)=exp[A_t (u)-B_t (u) r_t ]where r_t is the only source of uncertainty of bond price.We need to price call option with maturity T:Q_(t=T) (T)=(P_T (u)-K...
October 17th, 2013, 7:32 pm
Forum: Student Forum
Topic: How to interpret the probability in the figure?
Replies: 12
Views: 6369

### How to interpret the probability in the figure?

<t>Thank you for your responses. I still hope to understand this type of problem further. Now suppose Y=min(X1, X2). One can get P{Y>=y}=(1-y)^2. From the attached figure, it can be shown that P{Y>=y and Z<=z} = (z-y)^2. However, can we calculate P{Y>=y and Z<=z} mathematically without the help of f...
October 16th, 2013, 1:27 am
Forum: Student Forum
Topic: How to interpret the probability in the figure?
Replies: 12
Views: 6369

### How to interpret the probability in the figure?

<t>Let X1 and X2 be IID random variables with uniform distribution between 0 and 1. z = max(X1, X2).I can calculate the cdf of P{Z<=z}=z^2 analytically. But how to interpret this formula from the attached figure? why the square (0,0)_(z,0)_(z,z)_(0,z) is P{Z<=z}?Thank you. Thank you for your suggest...
• 1
• 3
• 4
• 5
• 6
• 7

GZIP: On