January 20th, 2012, 9:18 pm
Hi,I am using Vanna Volga to price a one touch option for different currency pairs. I am calculating theoretical value first (Black Scholes) using formula from Wystup/Castagna book, which is pretty standard. Theoretical value is exactly matching with the bloomberg values.When it comes to the overhedge calculation, I am getting values different than bloomberg (bbg). For some pairs, difference is less than 1% but for some others its in range of 2-4%. I believe bbg is doing some kind of adjustment internally. Any idea what can I do to be consistent with bbg prices. Below is some equations that I am using.For BlackScholes: standard formula from Wystup book. For Overhedge calculation steps please find document attached.Any help is much appreciated.Thanks so much.
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VV.zip
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