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by marchisi
December 14th, 2006, 6:46 pm
Forum: Student Forum
Topic: Volatility arbitrage
Replies: 0
Views: 84369

Volatility arbitrage

I have a simple question. The implied volatility of a 90% Call is bigger than a 100% Call (Smile)What would be my P&L if I sell 90% Call and buy 100% Call keeping Zero Delta until maturity?Thanks
by marchisi
November 17th, 2006, 5:08 pm
Forum: Student Forum
Topic: Pricing - Fat Tail
Replies: 7
Views: 88622

Pricing - Fat Tail

I have to price an option with the following characteristics:Let X% = daily variation of S&P (between two consecutive days)The bank pays a fixed coupon daily each day X% > -10%The bank receives (-X% - 10%) if X% < -10%Does anybody know how to price this rare event?Regards,