<t>Good morning, I guess the confusion comes from the question whether the BF is to be considered vega weighted or not. As far as i know, the quoted BF always is, meaning we would write its volatility as 0.5*(c+p)-ATM. At the same time, RR=c-p.You can then see that ATM-0.5*RR+BF=ATM-0.5*c+0.5*p+0.5*...

<t>Hi Randomness, no, not that paper by Pat, instead it is called something like "Range notes". I have not got it to hand right now but if you search this forum you should eventually find the correct thread.It is very unlikely that I will be able to answer any questions on FX structuring but do feel...

<r>Thanks for the answer Randomness,I am doing the same thing for IR digitals as you describe except that we do not trade digitals by themselves but as part of larger structures such that I have found it to be more plausible to use a balanced replication for the digital i.e. first vanilla at strike ...

<t>..and as a complement to Tibbar's answer, it is not that surprising you should have to do this given it is the same procedure as has to be applied for non-trivial deterministic ODEs and PDEs.However, for the simple polynomial cases you mention, the guess can be highly educated indeed. The reason ...

<t>Hello everyone.I understand digitals are usually not priced theoretically (i.e. using half the B-S formula) but as a replicating call/put spread. Currently I am trying to price European digitals in an FX context. Here bid-ask spreads seen in the market become enormous as soon as maturities exceed...

<r>Hello everyone,I am trying to price CMS spread options using the Kirk and Aron formula as published in "Correlation in the Energy Markets", 1995. Does anyone know whether that paper is still available anywhere? Reference is "Managing Energy Price Risk", Risk Books 1995; this is currently in its t...

Hello,the result does follow if you use a Taylor expansion to second orderexp x = 1 + x + 1/2 x^2 + O(x^3).Simplify, replace and leave out the term in (dt)^(3/2) to get the given result.

<r>Good morning,(10.1) says that dC/d(d1)=0, where C is a BS European call value and d1 is defined as usual. To show this, simply differentiate the BS value and replace for d1.You will then find that dC/d(d1) crops up in and drops out of nearly all the expressions for the Greeks if you just calculat...

<r>Hello,Higham's book has the calculations as exercises. They are actually very easy once you have been told about a certain intermediary result, which you can then use for nearly all of the Greeks.Catalogue URL of book: <URL url="http://www.cambridge.org/uk/catalogue/catalogue.asp?isbn=0521547571&...

Thanks for that mj.

<t>Hello,I am looking at a TARN structure and wondering whether this can safely be priced using a single-factor Monte Carlo approach. The point I am unsure about is that cash flows are not Markovian in that each payment depends on the full history of payments up to that point.I would be delighted to...

<t>Hello,no, it is not *necessary* to use objects, especially not in C++ which still contains C as a subset (for legacy reasons) and thus makes it quite possible to write "C++ programs" that have no connection with OO at all.If you use a language like Java, you will need to start out with a class. H...

<t>As I see it, a time series would be an instance, whereas an assumed type of stochastic process is a template. If you want to do anything using the time series that goes beyond just description ('The returns on that date looked like this'), you need to assume an underlying model for that as well; ...

<t>Hello everyone,I am thinking about a single forward payoff based on a CMS spread, say 20yr CMS - 2 yr CMS five years from now. There is no optionality, if the value goes negative the other party has to pay. I understand that forward swap rates are implied by the market discount curve, i.e. forwar...

<t>Hello, unless I misunderstand you you've answered your own question..your stochastic process - Wfunction of W and t - X(W, t) = W^2 - tUse Ito's Lemma - dX = (2WdW + 1/2 * 2 * dw^2) - 1 dt = 2WdW + dt - dt = 2WdWYou've found that X is a process whose increments have zero drift term i.e. a marting...