Oh Sorry I guess I was kind of rude . I figured you were been nice but I was wondering why the code had a good performance...

Impressive!

how so?

That`s the data set I`ve use. The first port I ran the code in Matlab and now I did it in C++ double Price = 100; double Strike = 150; double Volatility = 0.04; double Risk_Free = 0.00; double Dividends = 0; double Time = 1; double T_Vols = 1;   tol = 1.0e-29 ( used in the Bisection) BS Price = 9.00...

Just read this thread today and got

Volatility = 0.04
Opt_Price=9.01002030921698e-25
Implied_Volatilty =0.0400000003783122

using a biscetion with a smart initial bounds guess.
It converged using a tol 1e-30 after 24 steps

It is common in option modeling to differentiate between diffusion or volatility time, and the forward period for the underlying. The instant you execute an option trade you are exposed to price movements in the underlying even though a spot trade in the underlying made at the same time hasn’t yet ...

I mean if you have two different settlement calendars.  One for you Risk Free and another one for the Exchange which your underlying trades, the case for Brazil for instance.  so in your derivation the Time to maturity w.r.t to the forward might be different then the Time associate with the volatili...

Did anyone derived the local volatility from implied volatilites using the spot prices in the moneyness?Also, using two different year fracs for Vol Days and Carry?
I´ve done it but its highly unstable even when I use a parametric model to fit the smile( Something like SVI...)
 
Thanks

<t>QuoteOriginally posted by: outrunI'm worried about the bigger picture, I would tell management something like this: * bank will make an easy profit on you (your company), you have no understanding what type of contract your trying to buy, how to price it,.. nor what you're letting yourself in wit...

Well, I'm still trying to figure it out. If you go on bloomberg and price it as a local vol you would get Black-Scholes Implied Vol of ~14% then if you changed it for the Black-Scholes of Finite Differences for the BS equation you would get a much higher implied Vol.

<t>QuoteOriginally posted by: bearishIn case of a single look, we usually refer to the product as a digital option rather than a barrier.I see, thanks. Nevertheless, the payoff would be exactly the same as a call spread - digital, correct? Regarding my initial question, does it make sense to price i...

<t>QuoteOriginally posted by: frolloosA barrier option is not a simple callspread / digital - unless I am missing sth here. However a callspread / digital can be used as an upper bound, which is maybe why you think the prices are too low. I very much doubt banks would price barrier options systemati...

<t>Hi, today I was quoting couple of banks for an European Kock-out Barrier with a rebate on an Equity Index (Ibovespa)When I got some prices back I thought their bids were too low and started to look on individual Vols and check their assumptions.The lower bid "explanation" comes from the fact that...

Take a look in Veronesi's book. I agree with you that it's difficult to find information on how price it however it is a bit more complicated than you think. On top of the fixed income tools you need data on defaults and prepayments.

Looking forward to get it

Local players are long USDBRL. If you want to short Buy some ATMS puts because the Forward makes them really cheap