(and each step along the path)

like bearish said, you need to evaluate the expectation that you refer to analytically, for each one of your scenarios

<r>In Piterbarg's 2003 paper: <URL url="http://www.javaquant.net/papers/piterbarg_2003_stochastic.pdf"><LINK_TEXT text="http://www.javaquant.net/papers/piterba ... hastic.pdf">http://www.javaquant.net/papers/piterbarg_2003_stochastic.pdf</LINK_TEXT></URL>, equation (4.2) gives the volatility of each...

<t>QuoteOriginally posted by: DocTocI give up sir. I have reached the conclusion that either a) or b) are true.a). I am misguided and definitely don't know enough maths to keep up with the symbols.b). You are misguided.I shall now drink myself silly.I still think having a short stint on a trading fl...

a swaption is an option on a swap rate, not on the forward rate quantities directly modelled by LMM.

<t>Arbitrage-free means that pricing done through Monte Carlo is correct. It doesn't say anything about distributional properties of other quantities like rates.Look at your maths for the zero coupon bond prices/discount factors under Hull-White. Now convert these to spot rates. It should then becom...

if you don't think the (risk-neutral) distribution of future interest rates impacts the value of options on these rates, what do you think impacts the value?

<r>Not sure if this is an economic or technical question, but see the following:<URL url="http://www.imagebam.com/image/1e2c62403999989This">http://www.imagebam.com/image/1e2c62403999989This</URL> is the normal vol of a 15x10 EUR swaption. The number has been stable since the series started, before ...

<t>Hello,Suppose I model my stock price S_t using Black_Scholes.Suppose my vanilla call option expires at time T, and at time t S_t is random (eg I'm looking at the process from time 0).Is it possible to derive the distribution of call option prices at time t using the knowledge of the distribution ...

why doesn't it?the price can go to 1+e or 1-e, and under the EMM we want the expected value to be 1..???

<r>hi all,i am confused by 28j here - <URL url="http://maths.cam.ac.uk/undergrad/pastpapers/2007/Part_2/PaperII_2.pdfthe"><LINK_TEXT text="http://maths.cam.ac.uk/undergrad/pastpa ... I_2.pdfthe">http://maths.cam.ac.uk/undergrad/pastpapers/2007/Part_2/PaperII_2.pdfthe</LINK_TEXT></URL> part after the...

<r>I am just learning this stuff, and am quite stuck on what is quite a fundamental problem, and also quite an interesting one, so it's driving me a bit mad!question 7 - <URL url="http://www.statslab.cam.ac.uk/~mike/SFM/example3.pdfI">http://www.statslab.cam.ac.uk/~mike/SFM/example3.pdfI</URL> am un...

<t>I don't think so? If we increase the number of steps then the step size decreases, and the valuation converges to the BS price. But as the number of steps increases, i am noticing the binomial model alternates between overpricing and underpricing the option, and this is the behaviour I'm curious ...

<t>Hello,This is quite a simple question (I think), but one which eludes me.. when using the CRR binomial method to price a vanilla call, the error oscillates between being positive and negative at each step as we increase the number of steps.Could anyone offer a simple explanation as to why? it's n...

<t> can we not replicate a cdo^2 with a tranchelet?i.e say we package up some x-y% tranches as a cdo^2, and take the u-v% tranche.the 0-u% tranche of the cdo^2 starts getting hit when x% of the cdo is taken out, and is fully wiped out when (u*(y-x)+u)% of the cdo is taken out, right? the gives the l...