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rmax
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Ideas about new open source quanfin project

October 4th, 2011, 9:09 am

I know Dr W owns the website, but Quantessential strikes me as quite a good name for the framework... if he can be persuded to donote it to the wider cause... EDIT: Correct title for Dr W
Last edited by rmax on October 3rd, 2011, 10:00 pm, edited 1 time in total.
 
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SierpinskyJanitor
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Ideas about new open source quanfin project

October 4th, 2011, 9:22 am

It seems someone already had the same idea: http://www.quantessential.com/ BTW, I don´t mean Dr.W but rather:Quantessential ResearchQuantessential Research is a research firm. It is based in Boston, Massachusetts.101 Tremont StreetSuffolkBoston, MA 02108-5004United States
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rmax
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Ideas about new open source quanfin project

October 4th, 2011, 9:56 am

Not what who is shows:Registrant:Wilmott (WILMO35128)5Moscow Road, , W2 4SWGBDomain name: quantessential.comTechnical contact:Admin, Domain (DA566653)Easily Limited3rd Floor, Prospero House241 Borough High StreetBorough, London, SE1 1GAGB
 
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Alan
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Ideas about new open source quanfin project

October 4th, 2011, 5:17 pm

Here is a feature request inspired by a current discussion in the Student Forum.99% of the time, when people code up a pricer for American-style options, they just output an option value.Well, I want to see the early exercise boundary, too!
Last edited by Alan on October 3rd, 2011, 10:00 pm, edited 1 time in total.
 
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frenchX
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Ideas about new open source quanfin project

October 4th, 2011, 5:41 pm

Totally agree with Alan request. That's something really interesting to have a look at this even from a practical point of view.
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Cuchulainn
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Ideas about new open source quanfin project

October 4th, 2011, 5:45 pm

QuoteOriginally posted by: AlanHere is a feature request inspired by a current discussion in the Student Forum.99% of the time, when people code up a pricer for American-style options, they just output an option value.Well, I want to see the early exercise boundary, too!I know 1 method: use Landau transformation front fixing to transform the PDE to interval [0,1]. It is now NL because involves coupled V and B(t). Then solve for these 2 quantities. Maybe a nice ADE project for FX. Concrete and doable.
Last edited by Cuchulainn on October 3rd, 2011, 10:00 pm, edited 1 time in total.
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Alan
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Ideas about new open source quanfin project

October 4th, 2011, 6:06 pm

Good. Related to that, I often want to use Mathematica graphics. So, the ideal code would give me the option of seeing a visual of the boundary or just outputtingthe raw data for it that I display myself.
 
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frenchX
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Ideas about new open source quanfin project

October 4th, 2011, 6:09 pm

I was thinking about building a code (in Matlab, my C++ skill is not good enough) for pricing American option for Levy process using FFT method with forward grid shooting. Once you have a pricing tree structure, you just have to keep in memories the point for which you have smooth pasting I guess. Fixed point transformation into a nonlinear PDE would be nice for BS world but for general jump diffusion or SV model it would be awfull I think. Moreover the best would be a code which gives the boundary and the value. Once you have a kick pricing stuff, the critical boundary is just given by Option_value(S*)=Payoff(S*) But I keep in mind of using a ADE scheme for the optimal boundary in the BS world. that's a nice idea (I'll try leung+duffy pelleat idea). But I really think about other idea to obtain the optimal boundary (the NL PDE is not the best way I think).
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frenchX
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Ideas about new open source quanfin project

October 4th, 2011, 6:25 pm

I'll give a try on Friday evening. Forward grid shooting with FFT and characteristic function and keep in memories the value S* such as Option(S*)=Payoff(S*) for each time step. Sounds easy on the paper !! (I already have the algo now the implementation, always the trickier part).
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Polter
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Ideas about new open source quanfin project

October 4th, 2011, 6:28 pm

Alan, would S* (the critical spot price) be of interest to you?Definitions:http://finance.bi.no/~bernt/gcc_prog/al ... 1133.htmIf so, I think you can access it in QuantLib using criticalPrice member function (of BaroneAdesiWhaleyApproximationEngine):http://quantlib.sourcearchive.com/docum ... ce.htmlYou can see an example of using the BaroneAdesiWhaleyApproximationEngine in AmericanOptionTest::testBaroneAdesiWhaleyValues here:http://quantlib.sourcearchive.com/docum ... ource.html
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Alan
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Ideas about new open source quanfin project

October 4th, 2011, 8:32 pm

@Thijs, email sent@Polter, Not so much interested in that approximation.Would like to see early exercise boundaries accurately and quickly generated in models with continuous and discrete dividends, including:(i) GBM, (ii) exp Levy models, (iii) stoch. vol models, (iv) SVJ, etc. For example, for Case (iii) with cont div yields,I have a penalty method implemented in Mathematica, but it is a little slow for my tastes. Don't have a case (iv) implemented at all, although I have some algorithm ideas for it that I could contribute. Here is a related: Feature Request: a library of methods for converting a set of observed American-style option prices to estimatesof what the corresponding Euro-style prices would be, if they were trading. [This is a quite common problem neededfor smile fitting and modelling in a variety of contexts.]
Last edited by Alan on October 3rd, 2011, 10:00 pm, edited 1 time in total.
 
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Polter
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Ideas about new open source quanfin project

October 4th, 2011, 9:00 pm

Alan: I see, that's certainly far less-trivial, but also more interesting!BTW: for European<->American conversion is the idea to invert-around-the-implied-volatility? As in:0. given o_European_value (the observed European option price)1. find out implied-volatility (IV) "sigma_implied" via inversion of o_European (the European option price as a function of IV)2. obtain O_American_value as a result of evaluating O_American(sigma_implied)and analogously in the other direction?// the inversion-oriented method
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Alan
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Ideas about new open source quanfin project

October 4th, 2011, 9:05 pm

That method is a basic one, but if the underlying follows any process other than GBM, it is only an approximation (andsometimes quite a poor one). So, I think there is a need for additional (model-dependent) approaches.
 
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Polter
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Ideas about new open source quanfin project

October 4th, 2011, 9:11 pm

I see, good point!Does this imply the need for calibration (problem might be overdetermined, so no bijection, so no inversion) in general:0. given o_European_value (the observed European option price)1. find out model-dependent implied-parameters (IP) "parameters_implied" via calibration of o_European (the European option price as a function of IP)2. obtain O_American_value as a result of evaluating O_American(parameters_implied)and analogously in the other direction?// the model-dependent-calibration-oriented method The need-to-be-configurable points seem to be the models for obtaining o_European & O_American, calibration objective function (at least)?
Last edited by Polter on October 3rd, 2011, 10:00 pm, edited 1 time in total.
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