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by Alkmene
September 7th, 2010, 1:59 am
Forum: Student Forum
Topic: How to price a discrete up and out put option with initial price larger than barrier level?
Replies: 7
Views: 24467

How to price a discrete up and out put option with initial price larger than barrier level?

If this option has not knocked out it is not a traditional barrier option; it might be a window barrier option.
by Alkmene
September 6th, 2010, 4:20 am
Forum: Student Forum
Topic: Using drift to calculate future distribution of stock price.
Replies: 5
Views: 25399

Using drift to calculate future distribution of stock price.

<t>QuoteOriginally posted by: PaulMany derivatives models, such as those for incomplete markets, require the input of a drift. That's for derivatives valuation.If you are speculating with derivatives, either based on stock direction or on stock vol, then you will typically also need to estimate drif...
by Alkmene
August 20th, 2010, 5:48 am
Forum: Student Forum
Topic: about t and dt
Replies: 4
Views: 24476

about t and dt

<t>Both are days expressed as year fractions but the forner is an approximation of the trading days per calendar year and the latter is the actual calendar days.Other than that, they are equivalent.Depends on what you want to know but it is more common to use 365 for option pricing when considering ...
by Alkmene
August 11th, 2010, 1:48 am
Forum: Student Forum
Topic: Option Delta
Replies: 10
Views: 26245

Option Delta

Hmmm,d(max(0,s-k)/dsshould make it clear; just check the extrema:s->inf: ~ds/dss->0: ~constant/ds=0Cheers,Alk
by Alkmene
August 11th, 2010, 1:42 am
Forum: Student Forum
Topic: An option with two underlyings or two individual options with one underlying?
Replies: 9
Views: 25540

An option with two underlyings or two individual options with one underlying?

<t>Assume European options and come up with a scenario where 2 Individual options would be worth strictly less than the equally weighted basket of 2 underlyings at expiry.There should not be one. You can prove using the opposite and induction.Alternatively, you should be able to see that having 2 ti...
by Alkmene
August 10th, 2010, 6:25 am
Forum: Technical Forum
Topic: VBA_code instead of NORMSINV(RAND())
Replies: 11
Views: 36546

VBA_code instead of NORMSINV(RAND())

<t>Do you want more than 10 000 correlated variables in MC? Then good luck!If you are after something small, I use simple polar coordinates with a Parks-Miller-Bays-Durham; fast enough for me and polar reject creates 2 pairs at once. Otherwise, Parks-Miller-Bays-Durham and Cholesky is not too slow f...
by Alkmene
July 9th, 2010, 5:08 am
Forum: General Forum
Topic: fit the best geometric brownian motion
Replies: 12
Views: 28735

fit the best geometric brownian motion

<t>QuoteOriginally posted by: listQuoteOriginally posted by: mcbisonIf I have a time series of some asset with unknow distribution of return how can fit the best geometric brownian motion that replicate in the best way the time series???????????Subjectively and briefly, it seems that there exists a ...
by Alkmene
July 6th, 2010, 5:41 am
Forum: Technical Forum
Topic: MC in VBA
Replies: 0
Views: 25865

MC in VBA

<t>I observe and understand that the error introduced with using a simple approximation to N(01) as the sum of 12 iid U(0,1)-6introduces a large error when suimulating price paths under the risk neutral measure when we are using a large time scale (say 30 years).How can I estimate the error that is ...
by Alkmene
July 5th, 2010, 10:56 am
Forum: General Forum
Topic: How to get somewhere with a trading strategy
Replies: 7
Views: 27413

How to get somewhere with a trading strategy

<t>Trying to be helpful:a) You would have to be careful how you phrase these things: If you "think" something "can be" a succeful trading strategy, you will be shot down. Clearly the first question would be: "Why do you think it can be successful?".Only if you can show, prove, whatever, that your st...
by Alkmene
June 30th, 2010, 6:28 am
Forum: Student Forum
Topic: short rate models and risk neutral measure
Replies: 7
Views: 29452

short rate models and risk neutral measure

<t>I am interested too. My take on this is:Risk neutral means no risk preferrence, hence we are happy with the expectation being positive but don't care how it comes about - the bigger the better?Risk neutral measure: MM account as the numeraire.But for rates I thought one needs to use the forward m...
by Alkmene
June 30th, 2010, 6:18 am
Forum: Technical Forum
Topic: de-correlating
Replies: 0
Views: 26465

de-correlating

<r>What is meant and what are the techniques to de-correlate SDEs like in this thread?<URL url="http://www.wilmott.com/messageview.cfm?catid=34&threadid=38670Thanks,Alk"><LINK_TEXT text="http://www.wilmott.com/messageview.cfm? ... Thanks,Alk">http://www.wilmott.com/messageview.cfm?catid=34&t...
by Alkmene
June 23rd, 2010, 3:16 am
Forum: Student Forum
Topic: Gaussian White Noise
Replies: 5
Views: 26350

Gaussian White Noise

My simple understanding was that dependence and uncorrelated are possible but not the other way around. It is easy to have 2 dependent RVs with no correlation. Maybe that's what Java means by "linear correlation"?Thanks,Alk
by Alkmene
June 23rd, 2010, 3:07 am
Forum: General Forum
Topic: a structure note
Replies: 3
Views: 26672

a structure note

<t>I doubt that this could become really vanilla in its constituent parts but[Not enough detail about (3): What if top up was 10mn and the next year L<y% (ie, 2 x 6 month periods), does the counterparty get 20ml and the notional is -10mn?]Anyway, try decomposing by (L=Libor)Notional*Max(0, (L-y))/(L...
by Alkmene
June 16th, 2010, 10:16 pm
Forum: Technical Forum
Topic: ito extension
Replies: 2
Views: 27330

ito extension

<t>Is there some literature on extending ito processes and stochastic calculus to processes that are not described as an instantaneous normal distribution (I am not sure if this is expressed correctly). Essentially, I was wondering if we can have a drift term and overlay it with noise that is not no...
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