3 interview questions

hjmm · March 18th, 2007, 1:50 am

I got three interview questions as follows, any idea?1. how to price American binary option? I only know the European binary option formula, use numerical methods for american options?2. what is the distrubition of t=P(S<V). S is stock price, V is some certain value, t is the first time that S<V. Is it a stopping time problem?3. FX problem, say USD/EUR has volatility vol1, EUR/JPY has volatility vol2, what is the USD/JPY volatility?Thanks,

KackToodles · March 18th, 2007, 3:18 am

1. use options calculator2. the firststopping time distribution3. depends on correlations

Vassili · April 15th, 2007, 8:22 pm

Vassili · April 15th, 2007, 8:24 pm

There is no close form expression for the American binary call option? I am asking out of laziness because I can't be bother to work on it at this time of night

bhutes · April 16th, 2007, 3:35 pm

gallag · April 17th, 2007, 8:46 pm

QuoteOriginally posted by: VassiliThere is no close form expression for the American binary call option? Isn't that just a one touch option?

tkh · April 18th, 2007, 5:46 am

Q3. fx cross vols, formula is analogous to cosine theorem?can be used to back out correlation given 3 input volsor conversely calculate imp vol of an illiquid cross given 2 liquid fx crosses, input would be the correlation between the fx pairs and their respective imp vols..

Manosgerms · May 18th, 2007, 9:41 am

It is indeed just a one touch and there is a closed form BS solution for it

Tochiro · May 27th, 2007, 1:51 pm

Not exactly, because the payoff date is stochastic as for any american option...