<t>Could you get a rough answer by looking at a vanilla option with the strike at the barrier. e.g. for an up & in call. strike X, barrier H. H>X and H>S. If H gets touched then the value of the portfolio at that point is long call at X and short call at H. If H is close to X so that this value ...

<t>Hi,I am working on earnings/cashflow at risk numbers over a long period for a USD interest rate risk portfolio. The problem that I have is that the distribution of paths of the short term USD interest rate is unsatisfactory using a constant log normal volatility for the rate. A high number leads ...

<r>QuoteOriginally posted by: Energetic<blockquote>Quote<hr><i>Originally posted by: <b>JClarson</b></i>Another paper I found which has a different approach which might be worth a look is at <URL url="http://www.kier.kyoto-u.ac.jp/~fe/workingpapers/FE-KyotoU_WP01.pdfI"><LINK_TEXT text="http://www.ki...

<r>I will try using Curran's approximation, sigma^2*(T-t) will have a minimum of 0.01 so hopefully the results will remain satisfactory. Another paper I found which has a different approach which might be worth a look is at <URL url="http://www.kier.kyoto-u.ac.jp/~fe/workingpapers/FE-KyotoU_WP01.pdf...

<t>Thanks Energetic, that is the kind of approach I am getting towards. One other (possibly dumb) question on the moments approximation. As the option is on a future then there is no cost of carry applicable. Does that mean that I can not use the this method as one of my divisors will be zero for ca...

<t>A European style oil option on the front month of WTI. I will use Curran's or Levy's approximation. One possiblity I am considering would be to use a cost of carry rate to allow for the fact that the future price will drop during the averaging period.e.g. say that front month is 30 and the second...

<t>I need to price an asian option which is based on the daily settle of the front month of a commodity future. The complication is that the option averages daily over a single calendar month, but the front future rolls on the 20th of that month. What adjustments should I make to the vol, and approx...

<t>Thanks for that Pat, the problem I have is actually more qualitative. The problem with using the short term rates as (approximately) the mean values of the forward rates is that a user may have a projection for 5 years of rates drifting slightly down for the entire period (say) but it would still...

http://www.nr.com/cpp-blurb.htmlThe C code rather than the C++ code is available from the website, but it has a lot of useful material.John

<t>I am working on a tool for the projection of the market value of interest rate instruments. The tool is quite basic, so the only inputs required from the user are the current curve and the projected short term interest rate. My problem is that I have to draw a curve at a future valuation point gi...