<t>Hello,Say a stock trades at 50, with an ex-div tomorrow, of 1. We assume the spot only moves overnight to 49 at open the following morning.Before end of day,the 20 american call (assuming it is an early exercise candidate) price should be intrinsic : 30. The following day, it should then be worth...

nobody?

<r>Hi,referring to <URL url="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=907386"><LINK_TEXT text="http://papers.ssrn.com/sol3/papers.cfm? ... _id=907386">http://papers.ssrn.com/sol3/papers.cfm?abstract_id=907386</LINK_TEXT></URL>,(JofComputFinance Vol10 Number 4 Summer 2007)has any one tried/...

this barrier is continuous monitoring.the doubt i have is whether the fact that he needs to be monitoring the barrier continuously to close his short nullify it.

correct?

<t>there is no down and in.he says because he can buy the down and out under "intrinsic", and sell spot, he can arb it. what ever happens he locks in a profit.looks right.scenario 1: never knocks out. ie, spot stays above 38 all the time. if it ends at 38, he loses 0.4 on the call and makes 0.5 on s...

<t>no, are there any model-independent truths here?he thinks it's impossible for it to go below intrinsic.basically, the knockout probability, independently of any model, should be monotone increasing with volatility, right?If vol is high enough, over the next infinitesimal time, you tend to proba k...

how can I convince someone then that it's not an arb ?

hello,say the spot is 38.5, risk free rate at 2%, no divs, spot vol at 20% and the down and out 3-month 38 call (european in nature) is trading at 0.40.Can it trader under intrinsic ?rds,

<t>a) I understand.b) under BS then, you are saying I don't need to do BOTH the initial delta hedge for the option strip (which would take initial instantaneous delta to 0)AND take the long 2/S* futures position.Only the initial delta hedge of the strip, and then continuously delta hedge is enough (...

<t>Hello,This is a simpler more theoretical question than the posts before:I am referring here to the Demeterfi-Derman-Kamal-Zou paper. In a classical ideal B-S-M world,in terms of trades, if I were to go :- enter a long a 3month variance swap struck at (20%)^2, with variance continuously sampled, f...

<t>I am referring here to the Demeterfi-Derman-Kamal-Zou paper. In a classical ideal B-S-M world,in terms of trades, if I were to go :- enter a long a 3month variance swap struck at (20%)^2, with variance continuously sampled, from this moment, to hedge it completely, I would need to- short a contin...

<t>Hi,For short-dated variance swaps, if the expected realized variance is calculated continuously.the fair strike for the variance swap is given by EQ27 of the Demeterfi-Derman-Kamal-Zou paper.PI_cp is the present value of the portfolio of continuous infinitely close options with payoff at expiry g...

daveangel, what about the 3rd case if the option premium is paid at expiry?

outrun, your derivation that makes sense to me,doesn't agree with the replacement strike in Haug p196He doesn't even say that the new asian price (with replaced strike) should be multiplied by (n-m)/n