Agreed vol.

<r>These formulas are probably available in most banks' fx derivatives research department although I have not seen a detail publication yet. And I can't reveal anything as they are proprietary material <E>:-(</E> MForde has an interesting derivation below that factors in the skew if one can ignore ...

USD/JPY is an interesting one where the replication method (as used in dvega) sometimes produces barrier prices very different from the market, even for short dated stuff. This is especially true when the stoch vol boys are calling the shots.

Out of curiosity dinner, what ccy pair did you look at when you were testing the dvega model ?

<t>Benoitben mentioned what is commonly known in the FX world as a simple fadeout option. The fadein is just the strip of single discrete ki vanillas in his reply. Simple analytic solutions exist for these that take into account vol and interest rates to each "fixing" as well as simple extensions to...

The other nice one is "Computing the Constant Elasticity of Variance Option Pricing Formula" by Mark Schroder

Wildbill, That's correct.

quantstudent19, If you are willing to wait, Uwe is currently writing a book on FX structuring, to be published by John Wiley this year I think.

<t>Matt, The ref which quantstudent19 referred to is probably the only other publicely available article on the 3 vanilla replication method. As the fudge is proprietary to each bank, you probably won't find any more detail ones.quantstudent19, I do some FX quant stuff among other things. We have su...

<t>You're right !Well, I have seen USD/SGD DNT getting cheaper when one of the trigger (placed far away) is moved even further. So what you observed is not surprising when dealing with ccy pairs with large skews using a fudged replication method. Problems can start to surface when spot is very close...

<t>sammus, Introducing the fictitious point at T + dt is probably fine as what blade said but you should probably kill the diffusion (especially when vol and time step are large) when rolling back from T + dt to T if your grid is already well positioned to handle the strike discontinuty. Otherwise, ...

<t>Hi MaTT, What Anthony referred to is a 3 vanilla portfolio replication method that many houses use to quickly compute a "reasonable" barrier price more than 10 years ago. However, the true secret lies behind the "fudge". I believe SuperDerivatives uses an advanced version of it with "fudges" tail...

hunting, The code looks ok... what are the parameters of your option that you're trying to match and the bs analytic value ?

<r>Try this linkhttp://<URL url="http://www.ae.gatech.edu/~sruffin/courses/ae6042/AE_6042_Outline.htmThe"><LINK_TEXT text="www.ae.gatech.edu/~sruffin/courses/ae60 ... ine.htmThe">www.ae.gatech.edu/~sruffin/courses/ae6042/AE_6042_Outline.htmThe</LINK_TEXT></URL> notes are hand written so will need so...

Use call on EUR ... your traders will luv you for making that decision