How does one price such an instrument ?

QuoteOriginally posted by: TraderJoeHow does one price such an instrument ?example?

Don't know what your specific question is but maybe of interest ?http://www.sigmath.es.osaka-u.ac.jp/nag ... -kawai.pdf

With a hybrid model

QuoteOriginally posted by: CuchulainnQuoteOriginally posted by: TraderJoeHow does one price such an instrument ?example?Let's define a hybrid derivative - different types, different classes - and then look at their associated pricing models.

QuoteOriginally posted by: jfuquaDon't know what your specific question is but maybe of interest ?http://www.sigmath.es.osaka-u.ac.jp/nag ... wai.pdfYes. I've done the google and google scholar thing. Not much info on them perhaps because they are new developments and alot of the information is proprietary and confidential.

QuoteOriginally posted by: FriesensteinWith a hybrid model ;-)Very funny.

Hybrid, like a CPPI with fund derivatives in the risky asset? If it's really funky, make up a number & then double it.

QuoteOriginally posted by: TraderJoeQuoteOriginally posted by: FriesensteinWith a hybrid model ;-)Very funny.What do you expect if you do not say what kind of hybrid you are interested in!?!?Example:Hybrid = IR / FX or EQ Hybrid. Then a Cross Currency LMM or a Hybrid Markov Functional could be suited.Hybrid = IR / Credit Hybrid. Then a Defaultable LMM could be a starting point.etc.

QuoteOriginally posted by: FriesensteinQuoteOriginally posted by: TraderJoeQuoteOriginally posted by: FriesensteinWith a hybrid model ;-)Very funny.What do you expect if you do not say what kind of hybrid you are interested in!?!?Example:Hybrid = IR / FX or EQ Hybrid. Then a Cross Currency LMM or a Hybrid Markov Functional could be suited.Hybrid = IR / Credit Hybrid. Then a Defaultable LMM could be a starting point.etc.I'm not convinced.

You have got to be more specific, there are all sorts of hybrids. Is it spot-linked or curve-linked?

QuoteOriginally posted by: figaroYou have got to be more specific, there are all sorts of hybrids. Is it spot-linked or curve-linked?Curve.

depend a lot also on the different underlyings, and especially what kind of instruments are available calibrate to...take a look at piterbargs paper about model with fx skew. But on many underlyings it is problem of liquid instruments, not only for volatility but even concerning forwards...in this way fx/ir is the easiest to price because of the liquidity of both markets, only difficult for vvery longterm structures..if you have commodities/ir it is getting pretty difficult to get liquid instruments, beside the futures and the main instruments like oil, copper, alu, (i put silver and gold under fx)if you need other informations send me a pmrgds

Trader Joe, do you like football ? Which team

QuoteOriginally posted by: ddrdoubledepend a lot also on the different underlyings, and especially what kind of instruments are available calibrate to...take a look at piterbargs paper about model with fx skew. But on many underlyings it is problem of liquid instruments, not only for volatility but even concerning forwards...in this way fx/ir is the easiest to price because of the liquidity of both markets, only difficult for vvery longterm structures..if you have commodities/ir it is getting pretty difficult to get liquid instruments, beside the futures and the main instruments like oil, copper, alu, (i put silver and gold under fx)if you need other informations send me a pmrgdsPartly agree with ddrdouble. In my experience most of the issues arise in hedging and pricing correlation between the underlyings. fx/ir, equities/credit and commodities/some equities is fairly straightforward, but mostly it is guesswork. Even when you get reasonable confidence in your correlations ATM, the correlations can look very different if spot levels change significantly during the lifetime of the product.Model-wise, most generally you would be looking at multifactor curve models, but in practice reduced factor models with curve spreads as the underliers are the norm.