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Alan
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Hypothetic strange contracts

October 16th, 2013, 1:45 pm

QuoteOriginally posted by: outrunYes I agree with you, I also consider your integral as a solution to the problem. I'm trying to make the progam code I'm going to write a bit better by eleminating the need for numerical integration. E.g. if I deliver VBA, javascript or C++ code then the deliverable is nicer if it only uses basic functions. It also eliminates the risk of the self-written numerical inegrator getting unstable under certain parameter values. I don't have the time to write a numerical integrator that is as inteligent as the one shipped with Mathematica. I also don't want to force the user to install a 3rd party numerical integrator, I'd like to deliver a stable and selfcontained solution. Finally -unless you beat me to it - this will probably earn me a page in Collectors 3rd edition!Yeah, go for it. I won't beat you as I am 'done'
 
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frenchX
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Hypothetic strange contracts

October 21st, 2013, 9:03 am

Nice job you two !! (as usual might I say).I have several questions:1) I suspect your box contract price to be linked to the area of the box but what is the cheaper between those three contracts (S1,S2)*(T1,T2) vs (2S1,2S2)*(T1/2,T2/2) vs (S1/2,S2/2)*(2*T1,2*T2) ?2) I think there is closed form formula for linear barrier option so would it be possible to price a kind of "general polygon" box option contract ? (let's say for practical use that I don't have the same uncertainty during all the option life)3) How could you edge that ? Static edge with a bunch of one touches ?
 
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Alan
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Hypothetic strange contracts

October 21st, 2013, 11:39 am

Re 2) In the general case of hitting a 'region' in the same plane, the valuation is given by[$] V = E[1_{\{T_H < T\}} \, e^{-r T_H}][$], where [$]T_H[$] is the first hitting time of the 'region' and [$]T[$] is the expiration of the contract.This is such an easy Monte Carlo that I think I would just code that in 1/2 hour for a complicated region, declare victory, and be done.
Last edited by Alan on October 20th, 2013, 10:00 pm, edited 1 time in total.
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