<t>I find 1x2 Option spread difficult to price and manage.In particular traders tend to like buying the 1x ATMF option and sell 2x ATMS option for small premium (in rates and fx, in equity I would assume they like the 1x2 call spread).The delta hedger that is short the 1x ATMF vs 2x ATMS possibly se...

I found this page:galluccio_1

I tried to find a condition on parameters such that you don't have arbitrage between different strikes options, but I didn't manage to find anything non trivial.Stefano

<r>There should be a thread in this forum about the SVI vol interpolation of Gatheral. I struggled to obtain a sufficient condition for non arbitrage across strikes, but I did not manage to get a useful result.You may find the presentation in <URL url="http://www.math.nyu.edu/fellows_fin_math/gather...

<t>I propose the floowing rule of thumb for pricing capped variance swap. If I have to pay realized variance up to a certain level 2.5 * K, I can say that the stock will not move more than +/- 2.0 sqrt(2.5 * K * T) from its current level. Above and blow these levels the logpayoff should be replaced ...

<t>I began an unsuccesful thread months ago about multifactor stoch model (thread title: equity correlation & stochastic vol, you can find there a formula for the model I am going to describe with words)My idea is the following.There are Markets and Stocks.Markets are driven by a stochastic vol ...

<t>I posed the same question to Kahl direclty who replied:QuoteFor large \tau and increasing u the term e=c(u)*exp(d(u)\tau) can lead to a numerical overflow. As we can neglect the subtraction of -1 for large |e| we can calculate the logarithm of the numerator simply as:Re(Log(e)) = log(|c(u)|) + Re...

<t>I am trying to compute the Greeks under the Heston model.For example the Variance Vega: I expect that deriving the characteristic function by V and using the classic formula for European option, I should get the Vega.But, nevertheless, my analytical Variance Vega is quite different from the one I...

I am giving a look to that paper. I have always ignored the problem of the complex log ... ;-)By the way, which discretization scheme do you use when you do a monte carlo for the Heston model ?

<t>Carr uses a spacing eta of 0.25 with 4096 points. Which spacing are you using?The most complete article on FFT Error Control is the one of Lee: Option pricing by Transforms Methods.Actually I don't use Lee results but I just apply what Carr suggests. I have some problems for long dated options wi...

<r>QuoteOriginally posted by: twofish I think that there might be some connection between the martingale probablity picture and the idea of characteristics in PDE's, but I'll need to think about this.Try to give a look at this:<URL url="http://www.optioncity.net/pubs/Ch2Excerpt.pdf">http://www.optio...

<t>Those dll's are the ones that Visual Studio installer copied in your system32 during installation.They are linked because you dynamically link to MFC in your xlw project.I had the same problem and detected it with DepenencyWalker.I have a another problem with xll.When I open Excel with my xll pre...

<t>Hi everybodyWhich is the market standard in joint modeling different equities under stochastic volatility?These are my ideas, but they are not still tested:case 1: one marketIf equities X, Y, Z belong to the same market I, one could try to calibrate the parameters of the stock and vol processes V...

<t>QuoteOriginally posted by: erstwhileMotivationI explain what happens when you delta hedge and that if your trades are an appreciable percentage of average daily volume you will substantially decrease the volatility of the underlying. …Could you explain why this happens?I imagine that if I have to...

Yes, sigma makes the curve smoother. And the derivative of SVI(x) w.r.t. x increases as sigma decreases. Because I need to upper bound this derivative, I was thinking of finding a sufficient condition posing sigma = 0.