<t>They come in various flavors, but lets assume a fixed number of shares (BN), in which case the price paid by the buyer is:Payoff(T) = N. ( Max[ Min[ VWAP(0,T), Cap], Floor] - Discount )where T is variable, defined by the seller, subject to a pre-defined limits (e.g. Tmin and Tmax). There are two ...

<t>I'm starting to look at pricing of Accelerated Share Repurchase transactions (e.g. where a dealer buys either a fixed notional or fixed number of shares. The price the client pays is based on the VWAP over the trade. The key feature of the trade is that the dealer has flexibility to chose the len...

Hi, when people talk about rolling costs (in the context of futures), what are these costs and how do they arise?Thanks in advance

<r>I agree - implemented using futures, and rolling. Simple. However, since the strategy must adjust its futures positions daily to ensure the x2 leverage, the long-term performance is not simply x2 .... see the article below.<URL url="http://seekingalpha.com/article/123123-leveraged-etfs-too-good-t...

<t>The mulipliers used in CPPI are typically selected based on the amount of gap risk the issuer is willing to take (i.e. the CPPI mechanics will break down and fail to provide the principal protection in the event of a large one-day drop). As a rule of thumb, the strike of the embedded gap put (sol...

<t>In practice I don't believe its a huge issue (assuming you use a sensible random generator). You can run a simple test to observe it (try ran0 or simpler), but in practice most people are using at least ran2 - in this case you'd need to go way way way into the tail to observe it. Of course, by mi...

Have you seen Moro's approximation. Much better than Akman. I believe there is a Wilmott article on this somewhere.

<t>Portfolio Insurance has been around since the 80's (at least). Its still popular today, and has evolved somewhat over the years (additional of volatility control, for example). Obviously, given the recent market turmoil the case for CPPI has improved.In terms of asset allocation models, the stand...

<t>I'm familiar with Leland and its limitations. In practice a trader is unlikely to run an optimal strategy, or religiously follow the optimal strategy that is produced from a model. So the question then becomes, what is the safest way to adjust pricing for transaction costs in a conservative manne...

Does anyone know any tricks for accounting for transaction costs in option pricing (vanillas, equity underlying)?

Thanks for all your help. I'd be interested to hear peoples experiences/view on (a) performance of Sobol for v.high dimension payoffs and for complex, path-dependent payoffs,(b) does skipping initial points of Sobol sequence give better results?

Thanks - I'm already aware of these sources - just wondered if there was anything else out there. Are there any problems extending Sobol to very high dimensions, say >1000 ?

I've been looking at implementations of Sobol with good performance in high dimensions. What is generally accepted to be the dimensionality limit?Any suggestions where I could find some good references/source code?thanks!

you're talking about the dynamics of the average - as more people come in the incremental change in the avg height becomes smaller and smaller, i.e. the vol of the average falls. But how does this observation explain why the option gamma is larger than the equivalent vanilla?

<t>Hi,I came across a curious result today which I can't get my head around. If I price an Asian option at inception (fixed strike, arithmetic avg of discrete fixings), the gamma is larger than a vanilla with same maturity & strike. Given that the vol of the average is quite a bit lower than the...