Asian options come in different flavors as described below, but to the extent they have European exercise rights they can be priced by QuantLib using primarily Monte Carlo, but under certain circumstances using also Finite Differences or even analytic formulas. Table Of Contents Asian Option Description Creating all four types of Asian ...
The topic here is not about simple option pricing but rather about dealing with the complexity introduced by the simultaneous existence of several different currencies in the context of calculating the Price and Value at Risk of a portfolio of European FX options. If you are not familiar with the basics of European option pricing in Excel using Der...
A common usage of quanto call options is to benefit from the price appreciation of a foreign asset and on the same time stay immune on exchange rate variations. A European style quanto call option on a foreign asset S with strike K is always cash settled and pays its holder on expiry time T the amount max{S(T) – K, 0} converted into domestic curren...
You are all familiar with simple European call options that are securities promising to pay their holders at some agreed future time T the difference S(T) – K between the price S(T) realized by a monitored underlying S at time T and a fixed amount K, under the condition that S(T) is greater than K. The last long sentence may be compressed to t...
Assume you possess Nd units of a currency DOM regarded as domestic currency. For example, you live in the US and hold 1,000 USD, ie. Nd = 1,000 and DOM = USD. For whatever reasons, you want to replace this money with their equivalent number of units Nf of another currency FOR regarded as foreign currency. For concreteness think of FOR like if it w...
The basic concepts of spot fx rates, forward fx contracts, fx swaps and the construction of foreign yield curves out of fx forward rates have been described in detail in my previous fx rates article. While these instruments cover the short end of the maturity spectrum – typically about a year -, the tenor of so-called currency swaps (also known as...
The question whether Excel can be trusted for pricing and risk managing derivative transactions seems to be a never ending one. If you are curious about my own opinion on this matter, you may jump to the end of this article. In the sequel, I will confront this issue through the real-world case of pricing and managing a book of FX options. In my las...
Back in 2017 I had shown in a 13-min video titled Option pricing in Excel with Implied Volatility Surface using QuantLib how an option on the EURO STOXX 50 index can be priced using not a single vol quote, but rather a table of market volatilities spanning several option expiries and strikes. On this post I will turn my attention to the pricing of ...
