<t>Hi all,Considerring another case:the underlying is in USD, the original notional is in EUR. The payoff is Notional*max((S_T-SX)/S0), 0) in EUR. This is a standard quanto case. If in the first case when I get the payoff, I immediately transform it into EUR with FX_T, then the actual payoff I get i...

Thank you for the reply. As you mentioned it looks like settled in a foreign currency , should it be treated as a quanto case?QuoteOriginally posted by: daveangelthis looks like a local currency (USD) option settled in a foreign currency (EUR)

<t>The full payoff is:at expiration, one can get Notional*FX_T*max((S_T-SX)/S0), 0)S0 is the initial underlying value, which is a fixed number at the beginning of the trade, SX is negotiated, which could be S0 or the minimum underlying value before expiration, or others. QuoteOriginally posted by: A...

Hi Mars,Thanks for your reminding. Currently I use Mento carlo to simulate FX and S process, with the random numbers used in the simulation correlated. Is that OK? Are there any other things special that need attention?Best,S

<t>Hi all,I met a special case which made me confused in deciding whether it is a quanto. In this case, the underlying is in USD, the original notional is in EUR. The payoff is Notional*FX_T*(S_T/S0), in which S_T and S0 are final and initial underlything prices respectively, FX_T is the EUR/USD exc...

<t>Hi daveangel,I'm sorry but I can't understand the formula of forward price. When I mentioned the "yield" r2, I meant that this bond is risky. Because the bond has default possibility, its price is discounted by r2 from par to S on today instead of using r1 for discounting(supposing the bond is ze...

Hi daveangel,Thanks for your reply. Do you mean that the Fo should be S*exp(r1*T), and P(0,T) equals to exp(-r1*T)? Thus the bond option price has nothing to do with r2?

<t>Hi Guys,When using the Black's(76) Model in pricing the bond option price, the formula is defined as:c=P(0,T)[Fo*N(d1)-K*N(d2)], in which Fo is the forward price of the bond. Supposing the risk-less rate is r1 while the yield of bond is r2, in my understanding Fo should be S*exp(r2*T). Is it righ...

<t>Dear all,I'm currently pricing an American option based on convertible bond, which confused me a lot. Due to some options inclued in the convertible bond(such as option to convert to equity as well as some path-dependent options) I had to choose mento carlo but not binary tree method. In my algor...

It's my fault to consider ATM 0.5 directly without thinking about its meaning. The ATM delta actually means delta neutral straddle, not delta 50, which equals to 0.5*exp(-rf*T).Thanks for all of your reply!

<t>Hi,I've some questions about volatility in FX option. When I download the volatility data from Bloomberg, it is represented in terms of delta, with ATM which meaning 0.5delta call. In the textbook the FX option delta=exp(-rf*T)N(d1), thus for ATM it should be 0.5= exp(-rf*T)N(d1). N(d1) has a ran...

Is the hull white tree difficult to build by matlab, when the volatility is not consistent?

<t>Hi crmorcom,Thanks a lot for your replying. If I simulate the short rate until T, following is the way I want to implement(supposing there are two paths only):1. Simulate two paths' short rate until T, which are r01->r11->r21->...->rt1->r(t+1)1->...->r(T-1)1 and r02->r12->r22->...->rt2->r(t+1)2->...

Hi, could somebody help to answer my questions ? They really confused me for a long time.

<t>I'm currently using MC to simulate the short rate based on Hull white, then pricing the callable bond in backward direction. Supposing the callable date t and bond maturity date T, until which date should I simulate the short rate? One way is to simulate the short rate until T, then the bond pric...