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frolloos
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Joined: September 27th, 2007, 5:29 pm
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Re: On BS, by List

January 29th, 2017, 6:29 pm

Ok, just talk about the stock and use the word "g - - - - - - - c" in your explanation.
I have a bad feeling about this.. I'd not be surprised if he'd write geriatric.

Maybe another hint might help like what levels are interest rates at nowadays.
It is much easier to make a hint. Otherwise it might look like you also do not clear understand Paul's question 
I already gave you the hint.

Is there a Ukrainian/Russian translation of PWOQF? Or any other good qf book? Maybe it's 'just' a language issue, although your habit of hijacking threads is another issue actually.
 
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list1
Posts: 827
Joined: July 22nd, 2015, 2:12 pm

Re: On BS, by List

January 29th, 2017, 9:43 pm


I have a bad feeling about this.. I'd not be surprised if he'd write geriatric.

Maybe another hint might help like what levels are interest rates at nowadays.
It is much easier to make a hint. Otherwise it might look like you also do not clear understand Paul's question 
I already gave you the hint.

Is there a Ukrainian/Russian translation of PWOQF? Or any other good qf book? Maybe it's 'just' a language issue, although your habit of hijacking threads is another issue actually.
 
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list1
Posts: 827
Joined: July 22nd, 2015, 2:12 pm

Re: On BS, by List

January 29th, 2017, 9:51 pm

It was only two my questions. To clarify the boundary exercise for American Option. Other was whether binomial scheme or BSE are used to make a decision to buy listed call option. I did not had an answer but have got a lot irrelevant questions  or suggestions as well as some accusations. But it is not too bad for me to see how people thinking about outlined problems.   
 
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Paul
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Joined: July 20th, 2001, 3:28 pm

Re: On BS, by List

January 29th, 2017, 10:02 pm

You are currently a million miles away from understanding what you want to understand. You need a better, or indeed any, grasp of the basics first. That is what we are trying to help you with and you are stubbornly or stupidly refusing.
 
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list1
Posts: 827
Joined: July 22nd, 2015, 2:12 pm

Re: On BS, by List

January 30th, 2017, 4:08 am

You are currently a million miles away from understanding what you want to understand. You need a better, or indeed any, grasp of the basics first. That is what we are trying to help you with and you are stubbornly or stupidly refusing.
Whether does million miles in the above message is a hint that answer on two simple questions 
1. To clarify the exercise boundary  for American Option.
2.  whether binomial scheme or BSE are used to make a decision to buy listed options 
I could not find for example in the PWOQF ?
I did not say that something are wrong. It was asked for advice to get a clarification or a reference. 
 
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outrun
Posts: 4573
Joined: January 1st, 1970, 12:00 am

Re: On BS, by List

January 30th, 2017, 8:23 am

1. To clarify the exercise boundary you first needs to answer and understand the P&L question, and then some more.
2. No one can tell how decision are made to buy options.
 
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Martinghoul
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Joined: July 18th, 2006, 5:49 am

Re: On BS, by List

January 30th, 2017, 9:35 am

I sincerely wish you the best of luck, folks...  I fear that you're gonna sorely need it.
 
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Paul
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Joined: July 20th, 2001, 3:28 pm

Re: On BS, by List

January 30th, 2017, 10:00 am

You are currently a million miles away from understanding what you want to understand. You need a better, or indeed any, grasp of the basics first. That is what we are trying to help you with and you are stubbornly or stupidly refusing.
Whether does million miles in the above message is a hint that answer on two simple questions 
1. To clarify the exercise boundary  for American Option.
2.  whether binomial scheme or BSE are used to make a decision to buy listed options 
I could not find for example in the PWOQF ?
I did not say that something are wrong. It was asked for advice to get a clarification or a reference. 
You couldn't find anything about American options in PWOQF???
 
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Cuchulainn
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Joined: July 16th, 2004, 7:38 am
Location: 20, 000

Re: On BS, by List

January 30th, 2017, 11:46 am

I could not find for example in the PWOQF ?
Too lazy to look? Or you prefer spoon-feeding? 
At the end of Vol 3 page 1351 there is an index, of which nearly a whole page is devoted to the subject.
A CD is also provided with code samples.

The best advice is to do some research into this topic and come back when you have answers. I think you have used up your quota of questions ..
 
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list1
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Joined: July 22nd, 2015, 2:12 pm

Re: On BS, by List

January 30th, 2017, 2:44 pm

1. To clarify the exercise boundary you first needs to answer and understand the P&L question, and then some more.
2. No one can tell how decision are made to buy options.
outrun, your answer is a unique as it relates to the questions:
1. To clarify the exercise boundary  for American Option.

2. whether do binomial scheme or BSE are used to make a decision to buy listed options 



Indeed P&L diagrams do not use either binomial scheme or BSE. They relate primarily to risk analysis. If we add the exercise rule, which states exercise instruments not only options when they promise highest rate of return the intuitive pricing will be the same as I performed some years ago on formal level. very close.  
Existing approach is  confusing enough. On the first step it is obvious that we should deal with definition of AO for each market scenario. It is similar to BS hedged portfolio when we take differential and verify that for each scenario risky term with dw disappeared. Hence if we exercise AO at some moment t prior to maturity it should be clear that for this scenario American Option price either Call or Put should be equal to correspondent European counterpart. Otherwise it is a big chance that pricing is incorrect. The second step is when we should exercise AOs. Bearing in mind that AO price is defined for each scenario the optimal rule for exercising is max return. Any other rule is incorrect though we can use approximation approaches. Now we can use any reasonable estimate of stochastic AO price like expectation for example.
One of the boundary conditions is a derivative of the solution with respect to S equal to -1. It is not independent condition and it is not clear why it was presented Indeed if AP is a sufficiently smooth function that in the area where in the boundary the equality K - S > 0 is true it is obvious that [$] \frac{ \partial P_A}{\partial S} \,tends\,\, to \,-1[$]. In other words we do not present it separately. It is correct itself. In free boundary problems condition with derivatives usually present to specify transition between two phases. Option pricing does not deal with two phases transition and it is not clear whether or not we should have such condition. 
 
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outrun
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Joined: January 1st, 1970, 12:00 am

Re: On BS, by List

January 30th, 2017, 2:58 pm

You first need to understand the P&L, and as I said before I'm nog going to move the discussion into new directions before you do that. It is impossible to understand American options if yo don't understand P&L and *why* that P&L has a certain shape. 

Please give the P&L in dollars for this case you came up with yourself:
* you buy  a call with strike K=19 for a price of $5. "call with strike 19" means that you have the right (but not the obligation) to buy the stock at $19 at expiration. Using this contract definition you can derive an *exercise rule* about what to do with your call option at expiration...
* at the same time you sell the stock at $25

* what is the combined P&L of the two trades above at expiration for various stock prices, $10, $15,.. $30??
Last edited by outrun on January 30th, 2017, 3:17 pm, edited 1 time in total.
 
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list1
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Joined: July 22nd, 2015, 2:12 pm

Re: On BS, by List

January 30th, 2017, 3:15 pm

You first need to understand the P&L, and as I said before I'm nog going to move the discussion into new directions before you do that. It is impossible to understand American options if yo don't understand P&L and *why* that P&L has a certain shape. 

Please give the P&L in dollars for this case you came up with yourself:
* you buy  a call with strike K=19 for a price of $5. "call with strike 19" means that you have the right (but not the obligation) to buy the stock at $19 at expiration
* at the same time you sell the stock at $25

* what is the combined P&L of the two trades above at expiration for various stock prices, $10, $15,.. $30??
You should outline the problem formally P/L calculations are assigned to particular date for an European option. If we talk about American option P/L can be assign to any moment prior to maturity. If we included short selling at initial moment we need to say something about buying its back. Hence assigning a problem you should accurately formulate it. On the other hand you can simply show me on an error in my vision of AP pricing.
 
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Paul
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Joined: July 20th, 2001, 3:28 pm

Re: On BS, by List

January 30th, 2017, 3:33 pm

You don't understand the basics of anything, mathematics, finance, Internet forum etiquette,...There's no point in discussing American options until you learn the easy stuff.

Quite frankly, you are being very rude to all these people who are trying to help you.
 
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list1
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Joined: July 22nd, 2015, 2:12 pm

Re: On BS, by List

January 30th, 2017, 3:41 pm

You don't understand the basics of anything, mathematics, finance, Internet forum etiquette,...There's no point in discussing American options until you learn the easy stuff.

Quite frankly, you are being very rude to all these people who are trying to help you.
Paul, could you please make a reference to very rude message. Of course, asking that one can consider that as very rude too.
For all time I have been here I never said that a wilmotter do not understand something. I always try present my point on a problem not to a person. 
It might been very rude is a little bit overloaded ἐπίθετον
 
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outrun
Posts: 4573
Joined: January 1st, 1970, 12:00 am

Re: On BS, by List

January 30th, 2017, 4:11 pm

P&L calculation does not require "buying it back". You can value the stock at market value if you still have a position at expiration (for the cases I mentioned S(T)=$10,$15,...$30).

I had already said that you need to compute the P&L at expiration. The P&L depends on how you excersise your option right. As said before the option gives you the right to buy the stock at $19, but there is no obligation. It's up to you. However we expect you to be smart an do an optimal excersise ininder to compute the P&L

So, please provide The P&L.