Setting up an interest rate swaption trading desk is a complex endeavor. First, the type of the underlying interest rate should be defined, and it can be either a still existing ibor rate such as EURIBOR or JPY TIBOR or – in the case of LIBOR that has been discontinued as of June 30, 2023 - an equivalent ARR (Alternative Reference Rate) s...
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...
Various structured products can be precisely priced in Excel using Deriscope and its underlying QuantLib analytics. In this article I will focus on the Trigger Plus product issued by Morgan Stanley on April 1, 2019. It is based on the value of the worst performing of the Dow Jones Industrial Average and the Russel 2000 Index due April 4, 2024. It o...
The pricing of exotic interest rate products cannot ignore the so called market volatility cube that is made daily available by several swaption brokers. Traders often use the SABR Stochastic volatility model in order to estimate vols off the provided grid. In this article I will show you how to price an out-of-the-money swaption by applying SABR c...
With this article I want to show you how to create and price European options on an underlying that pays discrete dividends – such as European stock options - in Excel using the open source QuantLib analytics library. In my previous article I presented an overview of the QuantLib models that can be used in Excel towards pricing the simplest non-lin...
With this article I want to show you how to create and price American options on a non-dividend-paying underlying – such as American stock options - in Excel using the open source QuantLib analytics library. Table Of Contents American Options: What are they?Creating an object of type Stock OptionGenerating the pricing formulasPricing O...
With this article I want to show you how to create and price American options on an underlying that pays dividends – such as American stock options expiring after the ex-dividend date - in Excel using the open source QuantLib analytics library. In my previous article I showed you how to calculate the fair price of an American option on an unde...
Most people are unaware of the fact that free and open source QuantLib comes with a great variety of modelling approaches when it comes to pricing an interest rate European swaption in Excel that surpasses what is offered by expensive commercial products. In fact, 14 different modelling approaches are implemented, whereby the Black approach does no...
The Chicago Mercantile Exchange (CME) clears European swaption trades on 3-month USD LIBOR since April 2016 and has thus become the first major exchange that lists Over-The-Counter (OTC) interest rate products with optionality. The standardized swaption contracts have 5 different expiries - 1M, 3M, 6M, 1Y, 2Y – and 7 underlying swap tenors - 1Y, 2Y...
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...
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 ...
In my Introduction to Deriscope – Part 2 I showed you how to create a Stock Option object in Excel and how to access the list of functions that apply to that object. Now I will show you how to use the most important of these functions, the Price, which calculates the fair price of the calling object. Alternatively, you may watch my YouTub...
In Introduction to Deriscope – Part 1 I listed the main reasons for using Deriscope. Now I will show you the main features of Deriscope using as example the creation of a Stock Option object. Table of Contents The Deriscope TaskpaneThe Input AreaThe Type SelectorThe Function SelectorThe Browse AreaThe Go ButtonThe Created ObjectTrivial O...
Options are the simplest non-trivial financial derivatives around.They are part of the curriculum of every university course on Finance for a good reason: They are everywhere! They are traded on regulated exchanges around the world, change hands over the counter between … consenting adults, enhance or "infect" all sorts of contracts as "embed...
