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by cdsharm75
March 23rd, 2024, 3:05 pm
Forum: Student Forum
Topic: Option trading metrics - Return on Risk and ROC for a bull put spread
Replies: 0
Views: 55

Option trading metrics - Return on Risk and ROC for a bull put spread

Hello - looking for some advice from members who trade options. I'm trying to calculate the Return on Risk (ROR) and Return on Capital (ROC) for a bull put spread (credit spread). Would appreciate if someone could check the math and logic and advise is this is correct? Spreadsheet has the calcs and ...
by cdsharm75
March 2nd, 2024, 2:19 am
Forum: Student Forum
Topic: Clewlow and Strickland - one factor energy model, solution steps
Replies: 8
Views: 879

Re: Clewlow and Strickland - one factor energy model, solution steps

Ok folks Here's my attempt at the full solution - i.e. including the stochastic; dW term. The screenshot shows the algebra, the attached sheet , tab clew_full shows the implementation: Col I shows the original forward curve (Fo) from the clew_nonstoch tab. Cells D11 and columns J-M build out the com...
by cdsharm75
February 27th, 2024, 3:30 am
Forum: Student Forum
Topic: Clewlow and Strickland - one factor energy model, solution steps
Replies: 8
Views: 879

Re: Clewlow and Strickland - one factor energy model, solution steps

Finally - a eurkea moment....at-least it seems to be! I found another error in Col S - the original/starting Forward Curve I had created, labeled F0. The mistake was that I used the same alpha to decay the curve as I was using to create the exponential shocks - and that created the strange results. ...
by cdsharm75
February 27th, 2024, 2:26 am
Forum: Student Forum
Topic: Clewlow and Strickland - one factor energy model, solution steps
Replies: 8
Views: 879

Re: Clewlow and Strickland - one factor energy model, solution steps

It helps to have the limits of integration correct. My original solution has a mistake; the solution should read: F(T) = F0 * sigma/alpha * [1 - exp(-alpha * (T-t))] This fixes the issue with the interpretation of the T-t; i.e. time to maturity "flavor" I mentioned in #6 above. To be clear...
by cdsharm75
February 23rd, 2024, 4:00 am
Forum: Student Forum
Topic: Clewlow and Strickland - one factor energy model, solution steps
Replies: 8
Views: 879

Re: Clewlow and Strickland - one factor energy model, solution steps

Here's the first attempt at creating the declining forward curve as shown in the screenshots from the book. At this time, I'm only focused on the non-stochastic part for now, the stochastic part to follow later. Some things are not quite clear.....pls see the attached sheet and the comments below: C...
by cdsharm75
February 22nd, 2024, 3:52 am
Forum: Student Forum
Topic: Clewlow and Strickland - one factor energy model, solution steps
Replies: 8
Views: 879

Re: Clewlow and Strickland - one factor energy model, solution steps

@tags - appreciate the encouragement!! More coming soon as I try to wade through this stuff.
by cdsharm75
February 20th, 2024, 2:28 am
Forum: Student Forum
Topic: Clewlow and Strickland - one factor energy model, solution steps
Replies: 8
Views: 879

Re: Clewlow and Strickland - one factor energy model, solution steps

Figured out one mistake I made.....the factor inside the exponential term is not the one that creates the shape of the curve, it only impacts the magnitude of the shock and decays it across time. The original forward curve itself has a decay OR structure imposed on it. The shock is then applied on T...
by cdsharm75
February 18th, 2024, 1:53 am
Forum: Student Forum
Topic: Clewlow and Strickland - one factor energy model, solution steps
Replies: 8
Views: 879

Re: Clewlow and Strickland - one factor energy model, solution steps

Looks like my link above (after the words...."for those interested....") didn't make it. so posting it here.

Clewlow book
by cdsharm75
February 18th, 2024, 1:52 am
Forum: Student Forum
Topic: Clewlow and Strickland - one factor energy model, solution steps
Replies: 8
Views: 879

Clewlow and Strickland - one factor energy model, solution steps

The authors introduce forward curve models for Energy in Chapter 8 of their book, Energy Derivatives, Pricing and Risk Management. For those interested: https://www.amazon.com/Energy-Derivatives-Pricing-Risk-Management/dp/0953889602?ref_=ast_author_dp I'm trying to solve and implement (excel first) ...
by cdsharm75
February 2nd, 2024, 1:22 am
Forum: Student Forum
Topic: Drift of futures prices, Risk Neutral word
Replies: 5
Views: 622

Re: Drift of futures prices, Risk Neutral word

Thank you both! @katastofa - hehe; yes precise for sure.....but students like me could always use a little more help:). Hull is still my starting reference point- solid resource to have. @bearish - I'll check the paper by Black...could you recommend any others that discuss this at a more accessible ...
by cdsharm75
February 1st, 2024, 2:24 am
Forum: Student Forum
Topic: Drift of futures prices, Risk Neutral word
Replies: 5
Views: 622

Drift of futures prices, Risk Neutral word

Reference: Hull 8th edition, page 369 Hello - would appreciate some insight into this topic. I've taken it for granted all this time and finally started paying a little more attention and getting confused Hull states - "if we enter into a long futures contract at time 0...it's value is zero&quo...
by cdsharm75
October 17th, 2023, 12:44 am
Forum: Student Forum
Topic: Binomial Trees to Montecarlo
Replies: 7
Views: 3635

Re: Binomial Trees to Montecarlo

@Paul and @Marsden - thank you both for the detailed explanations - it's all very clear now - thanks!
@Marsden  yes - it was a misunderstanding how the MC works :)
by cdsharm75
October 16th, 2023, 8:19 pm
Forum: Student Forum
Topic: Binomial Trees to Montecarlo
Replies: 7
Views: 3635

Re: Binomial Trees to Montecarlo

@Alan - really appreciate the detail.....it's super clear now....thanks a ton!
by cdsharm75
October 15th, 2023, 8:57 pm
Forum: Student Forum
Topic: Binomial Trees to Montecarlo
Replies: 7
Views: 3635

Re: Binomial Trees to Montecarlo

Thanks Alan - I'm good with the shape of the final distribution......no concerns there. But are you also implying that since the terminal stock price occurs with its true probability (as shown by the histogram of terminal values), it's then ok to use a simple average? I'm trying to understand why we...
by cdsharm75
October 15th, 2023, 3:31 pm
Forum: Student Forum
Topic: Binomial Trees to Montecarlo
Replies: 7
Views: 3635

Binomial Trees to Montecarlo

I was recently reviewing my notes on the Binomial Trees and MonteCarlo (MC) methods for option pricing.  I noticed that while in the Binomial Trees, we use the probability weighted average, we use the simple average in the MC.  I've taken this for granted and just used the MC method....but I starte...
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