We are busy pricing a derivative (I think!) where the stock price is assumed to follow the usual GBM process. The strike however is not constant and follows a company's EBITDA. Our theory is that: There is no market for a company's EBITDA and therefore we cannot setup a replicating portfolio. Somet...

After a bit of digging I see my payoff mirrors that of a “bull call spread” or a “put call spread”, to be replicated by a long call + short call or long put + short put, respectively. Case closed I suppose, no fun integration and Green formulae unfortunately! Thanks Paul! I used the Additional Notes...

Oh wow that was pretty cool!

So plotting it, the left part of the payoff graph is a long call connected to a short put on the right (as the underlying increases)

Thanks so much, that was fun!

Thank you, I am however looking for two things here, (a) the derivation and (b) the closed form / analytical formulae for the price/value of the derivative. So starting with expectations of the above payoff, reducing this to integrals and then to nice and simple terms like S, N(d1), etc. I can be wr...

Apologies for not including formulae; I am waiting for answers on a separate post on how to include formulae. Question: I have a payoff that seems to me to be very vanilla in that it is European and that it is non path dependent. I have tried my best (happy to share workings) to start with Expectati...

I have searched but can’t find an explanation how to include formulae in my questions. None of the icons in the text editor seem related to formulae, unless I am mistaken.

Thanks in advance

I have recently rejoined the quant world after taking a 10-year hiatus in the Fintech world, and as such my question may be very trivial, apologies in advance. I understand that the LIBOR (and related) rates have been ditched in favour for SOFR. This is a 1-day rate whereas LIBOR was a 3M rate.  Que...

<t>Thanks bearishI am aware of CVA's counterpart DVA, however there seems to be a school of thought which complicates the matter by incorporating both (i) counterparty default and (ii) bank survival in CVA as well as (iii) bank default and (iv) counterparty survival in DVA. As a result CVA becomes a...

<t>Most textbooks define CVA as being independent of whether the bank survives. Does it not makes sense to simultaneously consider counterparty and bank default?I am trying to ascertain whether or not "real traders" are doing this and/or should be doing this?Also, from a mathematical point of view, ...

<t>I am not seeing a lot of research popping up where the numeraire is changed from the "LIBOR bank account" to the "OIS collateral account". Everyone seems to be frantically busy trying to decide if OIS applies to collateralised and un-collateralised trades but no one seems to talk about the impact...

<t>I would like to determine the most correct (or least incorrect) way to value a cross-currency IRS with collateral.If I understand Hull-White (OIS vs LIBOR) they are arguing that the only valid argument for changing our discount curve should be because we assume a new risk-free rate, regardless of...

Alan...have fixed the little typo, thanks.@pcaspers, thanks very much, I think that is it!

<t>I explain the reason for my question below, but for those not interested in the story I simply ask:Why would the following two payoffs produce a different option value using Black76:Payoff 1: [$]max[Strike - (Forward + spread),0][$]Payoff 2: [$]max[(Strike - spread) - Forward,0][$]where [$]spread...

Wonderful.Thanks for the reference.Regarding your quibble; Rest assured, I have applied Itô and solved the GBM such that I have a closed form for my n-th!Thank you very much for the help.

<t>Thanks.Regarding the forwards that I use:What I have done is assumed GBM for the spot and at future dates I simulate the exact value at a 95th percentile. Then, a bit naively, I use discount factors observed at [$]T=0[$] (today) and I "accrue" my simulated spot to the maturity of the option [$]T[...