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ACD
Posts: 107
Joined: April 19th, 2004, 8:09 am

### option hedging remarks

QuoteOriginally posted by: listQuoteNothing wrong with that definition, all I am saying is that you have no justification to think it applies to a stock and it's option. Their rates of return are not equal, the option is more leveraged, therefore it is only proportional to the stock in rate of return. In your own example the rates do not match, you match when the option expires in the money, but not when it expires out of the money (where the option return is -100% and the stock -50% <- this is the example by the way).Indeed, random stock and its options have different risk characteristics. Hence, the market choice of the sport price does not straightforward and expected return on option and on its underlying are different. This difference is some kind of the price on higher risky option and also stdv on option and underlying stock are different. These primary distinctions affect on option pricing.If you agree that they are different then why have you applied it to your justification that the BS model is incorrect as if it is true? Also please comment on that you have only made the returns equal in one scenario and not the other (they both need to match for this principal to apply)...

list
Topic Author
Posts: 2041
Joined: October 26th, 2005, 2:08 pm

### option hedging remarks

QuoteThen apply it and give the price.It took couple pages to write examples. Check them for example onhttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=807965from page 6Let us consider the rolling dice example that can serve as an example of the stochastic stock price. to page 10It presents a type of relevant calculations. Because that it was my first experience it is possible that today I need to change something.

daveangel
Posts: 17031
Joined: October 20th, 2003, 4:05 pm

### option hedging remarks

QuoteOriginally posted by: listQuoteThen apply it and give the price.It took couple pages to write examples. Check them for example onhttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=807965from page 6Let us consider the rolling dice example that can serve as an example of the stochastic stock price. to page 10It presents a type of relevant calculations. Because that it was my first experience it is possible that today I need to change something.if I made you a market 33.15/33.45 what would you do ?
knowledge comes, wisdom lingers

TinMan
Posts: 613
Joined: September 21st, 2006, 9:42 am

### option hedging remarks

QuoteOriginally posted by: listQuoteThen apply it and give the price.It took couple pages to write examples. Check them for example onhttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=807965from page 6Let us consider the rolling dice example that can serve as an example of the stochastic stock price. to page 10It presents a type of relevant calculations. Because that it was my first experience it is possible that today I need to change something.Ah the same old same old, refer to another one of your joke publications and then move the goalposts.You're supposed to be a mathematician why don't you start to act like one?Begin by dealing with the counter example you asked for and were then given.Give your price for the same scenario and we'll all see what your approach is worth.

list
Topic Author
Posts: 2041
Joined: October 26th, 2005, 2:08 pm

### option hedging remarks

QuoteOriginally posted by: ACDQuoteOriginally posted by: listIf you agree that they are different then why have you applied it to your justification that the BS model is incorrect as if it is true? Also please comment on that you have only made the returns equal in one scenario and not the other (they both need to match for this principal to apply)...In my interpretation BS model suggests the choice of the spot price. This itself does not good or bad. The BS drawback is that choosing the spot they lost the risk characteristics of their option's spot.Their 'bad' is that the BS price is claimed to be theoretically perfect while they lost the market risk of their definition.?you have only made the returns equal in one scenario and not the other? no the equal return takes place for each scenario from the set { omega : S ( T , omega ) > K }

list
Topic Author
Posts: 2041
Joined: October 26th, 2005, 2:08 pm

### option hedging remarks

QuoteOriginally posted by: daveangelQuoteOriginally posted by: listif I made you a market 33.15/33.45 what would you do ?I can make calculations. Choose K, S ( t ), and not too many diffrent and convinient for calculations. numbers S ( T ), and whethere 33.15/33.45 means P/L?

daveangel
Posts: 17031
Joined: October 20th, 2003, 4:05 pm

### option hedging remarks

QuoteOriginally posted by: listQuoteOriginally posted by: daveangelQuoteOriginally posted by: listif I made you a market 33.15/33.45 what would you do ?I can make calculations. Choose K, S ( t ), and not too many diffrent and convinient for calculations. numbers S ( T ), and whethere 33.15/33.45 means P/L?please make calculations and let me know if you wish to buy at 33.45 or sell at 33.15. please hurry market shuts in 25 minutes. K is 100.
Last edited by daveangel on August 30th, 2011, 10:00 pm, edited 1 time in total.
knowledge comes, wisdom lingers

rmax
Posts: 6080
Joined: December 8th, 2005, 9:31 am

### option hedging remarks

QuoteOriginally posted by: daveangelQuoteOriginally posted by: listQuoteOriginally posted by: daveangelQuoteOriginally posted by: listif I made you a market 33.15/33.45 what would you do ?I can make calculations. Choose K, S ( t ), and not too many diffrent and convinient for calculations. numbers S ( T ), and whethere 33.15/33.45 means P/L?please make calculations and let me know if you wish to buy at 33.45 or sell at 33.15. please hurry market shuts in 25 minutes. K is 100.LOL!

list
Topic Author
Posts: 2041
Joined: October 26th, 2005, 2:08 pm

### option hedging remarks

Quote[please make calculations and let me know if you wish to buy at 33.45 or sell at 33.15. please hurry market shuts in 25 minutes. K is 100.I said before that i am not a professional trader so sorry. Do you present buy and sell call option prices? And as I explained to say something usefull I need a distribution of the underlying in case if your underlying is what was in your original post.

daveangel
Posts: 17031
Joined: October 20th, 2003, 4:05 pm

### option hedging remarks

QuoteOriginally posted by: listQuote[please make calculations and let me know if you wish to buy at 33.45 or sell at 33.15. please hurry market shuts in 25 minutes. K is 100.I said before that i am not a professional trader so sorry. Do you present buy and sell call option prices? And as I explained to say something usefull I need a distribution of the underlying in case if your underlying is what was in your original post.I have given you a two way market. You can either trade at these prices or show me a better price ? what is you model telling you the option is worth. I have told you roughly what I think its worth.
knowledge comes, wisdom lingers

list
Topic Author
Posts: 2041
Joined: October 26th, 2005, 2:08 pm

### option hedging remarks

Quote LOL!I am sure that actually derivatives market will not change whether BS pricing will be taught 100 years more or experts will use an alternative. What can be change the materials that students learn in universities.

daveangel
Posts: 17031
Joined: October 20th, 2003, 4:05 pm

### option hedging remarks

QuoteOriginally posted by: listQuote LOL!I am sure that actually derivatives market will not change whether BS pricing will be taught 100 years more or experts will use an alternative. What can be change the materials that students learn in universities.not true - if a new fangled approach can arbitrage market prices then everyone wil gravitate to it.now you still have 8 minutes before markets close. where are you with that price ?
knowledge comes, wisdom lingers

daveangel
Posts: 17031
Joined: October 20th, 2003, 4:05 pm

### option hedging remarks

QuoteOriginally posted by: daveangelQuoteOriginally posted by: listQuote LOL!I am sure that actually derivatives market will not change whether BS pricing will be taught 100 years more or experts will use an alternative. What can be change the materials that students learn in universities.not true - if a new fangled approach can arbitrage market prices then everyone wil gravitate to it.now you still have 8 minutes before markets close. where are you with that price ?5:08 pm. I will check with my b/office to see if you did anything. of course, you could save me a lot of bother by telling me. btw price is still good for tomorrow. stock is still 100, strike is 100.
knowledge comes, wisdom lingers

list
Topic Author
Posts: 2041
Joined: October 26th, 2005, 2:08 pm

### option hedging remarks

Quotenot true - if a new fangled approach can arbitrage market prices then everyone wil gravitate to it.you can not make money saying that the business is more risky than gurus teach their clients. It is only a possibility to explain unexpected losses from the perfect BS pricing

TinMan
Posts: 613
Joined: September 21st, 2006, 9:42 am

### option hedging remarks

QuoteOriginally posted by: listQuotenot true - if a new fangled approach can arbitrage market prices then everyone wil gravitate to it.you can not make money saying that the business is more risky than gurus teach their clients. It is only a possibility to explain unexpected losses from the perfect BS pricingYou've no time for idle chit chat, don't you have an option to price?

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