Mid term exo option pricing

dinner · November 16th, 2005, 6:24 am

Hi,I get some market price of exotic options from my trader.As for the short term exo option, I can roughly get the same price by FENICS dvega model.However,for some mid/long term options,say 9 months above, the dvega price starts to be different from market's.Is that mean's the market take some other risk into account? maybe interest rate ? swap point ?thanks a lot..

mghiggins · November 16th, 2005, 10:34 am

FENICS just doesn't have a terribly good model for this stuff. Not bad, but pretty out of date compared to what the street is doing.

cpengtoh · November 23rd, 2005, 11:43 pm

Out of curiosity dinner, what ccy pair did you look at when you were testing the dvega model ?

dinner · November 24th, 2005, 2:53 am

Most are G3 ccys.

cpengtoh · November 24th, 2005, 3:54 am

USD/JPY is an interesting one where the replication method (as used in dvega) sometimes produces barrier prices very different from the market, even for short dated stuff. This is especially true when the stoch vol boys are calling the shots.