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quanteric
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Joined: June 4th, 2010, 12:01 am

Double barrier option pricing on Bloomberg OVML

February 7th, 2017, 10:07 am

Hi, am wondering if you have noticed something weird on Bloomberg OVML when pricing DKOCs?  Under Black-Scholes model, the pricing result on Bloomberg is the same as the analytic formulae if spot is the same as forward, otherwise the results are different.

For example, suppose we have a 3M DKO call on USDJPY traded today (7 Feb 2017) struck at 112.01, with barriers at 118.02 and 106.78.  Expiration and delivery dates are, respectively, 5 and 9 May.  Let the deposit rate on JPY be -0.75, vol be 14% and forward be 112.01 and spot at 113.

This translates to r at -0.0077862, t at 0.238356164, and q at 0.02913194.  The value I get from formulae (eg Haug pages 156-7) is 0.26221727, whereas Bloomberg implied a value of 0.259882.  However, if I now set spot to be the same as forward at 112.01, so that r=q=-0.0077862, the formulae and Bloomberg are now in agreement at 0.2822787.

Am wondering if anyone have came across this situation before?  Is there something that I missed or overlooked?

Thanks very much for your time and help on this.