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Blog-style articles that help you understand derivatives better by pricing them in Excel.

Pricing of Risk Scaling Options in Excel

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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 t...
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Market Data in Excel from IEX

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IEX (Investors Exchange)  is a new United States national stock exchange launched in New York in September 2016. Since February 2017 IEX publishes free of charge their trading data in real time. These include live and historical prices of over 8,000 US stocks and mutual funds plus financial information and news. Deriscope Initialization Derisc...
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108 Hits
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Market Data in Excel from TrueFX

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TrueFX is a provider of real time forex rates between the most liquid currencies. Both current prices and bid/offer quotes are streamed as quoted by various brokers.  Deriscope Initialization   Deriscope is an Excel AddIn specializing in derivatives valuation and live feeds acquisition in Excel. Its newest version also allows you to recei...
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Market Data in Excel from Alpha Vantage

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Alpha Vantage  is a provider of live and historical prices of global stocks, indices and forex rates (both fiat and crypto) as well as time series of statistical indicators. Live feeds are based on one-minute intraday series. Historical data include daily close, open, high, low and volume quotes and go back at least 20 years. Alpha Vantage pro...
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Market Data in Excel from Barchart

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Barchart  is – among else - a provider of live and historical prices of global stocks, indices, mutual funds, futures, options and forex rates (both fiat and crypto). In the free version of their service, live feeds are restricted to less than 25 symbols per query and 400 queries per day whereas the historical data may extend up to the last 6 ...
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Market Data in Excel from Yahoo Finance

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Yahoo Finance  is a provider of market information that includes live and historical prices of global stocks, indices, mutual funds, futures, options, commodities as well as forex (both fiat and crypto) and US treasury bond rates. Depending on the sourcing exchange, live feeds may be instant or delayed by a few minutes according to this t...
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Market Data in Excel from World Trading Data

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World Trading Data  is a provider of live and historical prices of global stocks, indices, US mutual funds and forex rates. Their expanding database currently covers over 58,000 stocks around the world, 25,000 US-based mutual funds and 20,000  fiat currency combinations . Live feeds are generally delayed by a few minutes, as is usual...
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Yahoo Finance Live Feeds in Excel after their API Discontinuation in November 2017

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On the fateful Wednesday of November 1 st , 2017 Yahoo decided to stop their – until then – free service of delivering real time market data as a text stream through a special URL. For hundreds of businesses and individuals who had relied for years on Yahoo's benevolent free service, this single action meant only one thing: Instant death! You may c...
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Using Quantos to gain exposure on Foreign Assets without the Currency Risk: Yes, but be careful!

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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...
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USD Swaption Pricing in Excel using SABR Stochastic Volatility and Market Vol Cube from CME

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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...
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USD Swaption Pricing in Excel using the Bachelier Model and Market Normal Vols from CME

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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, ...
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Parametric Yield Curve Fitting to Bond Prices under constraints: The National Bank of Georgia case

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Both the Nelson Siegel method and its Svensson extension are very popular among central and other banks when the time spectrum of interest rates needs to be derived from market bond prices. As I have explained in my related article , QuantLib is capable of solving the respective parametric equations treating the model parameters as unknown. Due to ...
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Accessing and Manipulating Historical Data from Yahoo Finance in Excel

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Yahoo Finance displays historical data for stock prices, indices, bond yields, fx rates, commodity prices etc on their website and allow anyone to download a text file with these data for free. Deriscope automates this process through a special spreadsheet formula called dsLive that takes as input the handle name of an object containing the specs o...
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Asian Option Pricing in Excel using QuantLib: Monte Carlo, Finite Differences, Analytic models for Arithmetic and Geometric Average. Example with live EUR/USD rate

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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. The main feature of an Asian option is that it involves the average of the realized pri...
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Swaption Pricing in Excel: 14 Free QuantLib Models plus Implied Volatility Surface and Cube

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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...
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Credit Default Swap (CDS) Pricing in Excel using QuantLib

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Free and open source QuantLib supports the precise valuation of Credit Default Swaps ( CDS ) in Excel. A CDS contract specifies N payment times T 1 , T 2 , …, T N at which, counterparty A (the Protection Seller ) receives a pre-agreed fixed amount from counterparty B (the Protection Buyer ) provided that a pre-defined credit event – such as the def...
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Over 30 Bond Risk Management Functions in Excel: Clean & Dirty Price, Yield, Duration, Convexity, BPS, DV01, Z-spread etc

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Free and open source QuantLib is capable of calculating several risk measures associated with the pricing of bonds  and allows you to get in Excel quantities like clean and dirty price, duration, convexity, BPS, DO01, Z-spread etc. I have already showed you how to build a yield curve out of clean bond prices using either a parametric  or ...
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Excel Builder and Cash Flow Viewer for Non-Standard Interest Rates Swaps

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Building, pricing and analyzing even non-standard interest rate swaps in Excel becomes a simple exercise when the Deriscope interface to the open source QuantLib analytics library is employed. We have already encountered a simple interest rate swap contract in the Yield Curve Building in Excel using Swap Rates article, where vanilla swaps were used...
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Time for a coffee break? Understanding Time and its implications on Interest Rates

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With this article I want to give you an intuitive feeling of the concept of interest rate and also show you how to work with various types of interest rates – such as a compounded interest rate - in Excel as accurately as market professionals do. Contrary to the four-dimensional space-time of relativistic physics, financial stochastic processes evo...
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313 Hits
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Parametric Yield Curve Fitting to Bond Prices: The Nelson-Siegel-Svensson method

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When it comes to building a yield curve out of bond prices, QuantLib can handle both non-parametric and parametric methods, both deliverable to Excel through Deriscope. The former have been demonstrated at my previous article . The latter impose a parametric form on some mathematical quantity implied by the produced yield curve. The following param...
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Yield Curve Building in Excel using Bond Prices (QuantLibXL vs Deriscope)

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With this article I want to show you how to create a bond yield curve in Excel, i.e. a yield curve out of bond prices, using the open source QuantLib analytics library. I will present both alternative spreadsheet interfaces to QuantLib, which are the QuantLibXL and Deriscope. The main use of a yield curve is that it allows us to calculate the ...
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Yield Curve Building in Excel using Deposits, Futures and Swaps

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With this article I want to show you how to create a yield curve in Excel using the open source QuantLib analytics library, when the input market data are a mixture of deposit rates, futures prices and swap rates. I have already written how you may build a yield curve using a single type of market instruments, such as deposits , futures  or sw...
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Yield Curve Building in Excel using Swap Rates

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With this article I want to show you how to create a yield curve in Excel using the open source QuantLib analytics library, when the input market data are swap rates. I will also show you how to apply dual bootstrapping when an exogenous yield curve is present. For short term maturities – typically less than a year – the yield curve may be built ou...
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2068 Hits
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Yield Curve Building in Excel using Futures

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With this article I want to show you how to create a yield curve in Excel using the open source QuantLib analytics library, when the input market data are futures prices. The futures convexity will be taken into account. I explained how you may build a yield curve in Excel out of forward rates in my previous article . In reality, forward rates are ...
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Yield Curve Building in Excel using Forward Rates

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With this article I want to show you how to create a yield curve in Excel using the open source QuantLib analytics library, when the input market data are forward rates. My previous article  focused on building a yield curve in Excel out of deposit rates in general and Libor rates in particular. These rates cover the short range of the maturit...
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756 Hits
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Yield Curve Building in Excel using Deposit (LIBOR) Rates

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With this article I want to show you how to create a yield curve in Excel using the open source QuantLib analytics library, when the input market data are deposit rates – such as Libor rates -, which are a special type of interest rates called zero rates. As I describe in my article about interest rates , a deposit rate - effectively the interest r...
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1289 Hits
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Beyond Black Scholes: American Option Price Dependence on Dividend Payment Time

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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...
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Beyond Black Scholes: American Options without Dividends

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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. America has been traditionally touted as the "land of choice" and American Options honor their name by granting their holders an additional ch...
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748 Hits
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Beyond Black Scholes: European Options with Discrete Dividends

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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...
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409 Hits
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Introduction to Deriscope – Part 5: Live Feeds

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Deriscope enables you to receive in Excel live feeds from several different providers. These feeds include real time or almost real time prices of financial securities (stocks, ETFs, indices, currencies, cryptocurrencies, futures and options), bid/offer quotes and sizes, time series of historical prices and statistical indicators, company financial...
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Introduction to Deriscope – Part 4: Spreadsheet

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In this article I show you how to manipulate the formulas created by the wizard in order to build functional Excel spreadsheets.  Deriscope Formula Syntax Rules ​ The main spreadsheet formula that Deriscope exposes to Excel is ds(r1, r2, …) where r1, r2 , … are ranges containing primarily key-value pairs. Also available are the dsi and dsv var...
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Introduction to Deriscope – Part 3: Pricing a Stock Option

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In my previous article 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. As I pointed out, the most important of these functions is the Price, which calculates the fair price of the calling object. The Price function is a so called Local function, in the sense that it is inv...
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Introduction to Deriscope – Part 2: Creating a Stock Option

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In my previous article I listed the main reasons for using Deriscope. Now I will show you how to use Deriscope to create a Stock Option object. Rather than typing the formula by hand, I will ask the wizard to create the formula for me. After I start Excel and press on the Enable and Show Wizard button inside the Deriscope ribbon tab, the Deriscope ...
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Introduction to Deriscope – Part 1: Why Deriscope?

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Deriscope is described by … Wikipedia at https://en.wikipedia.org/wiki/fascinatingnewproducts/bestever/deriscope as a "wizard-guided Excel Add-In dedicated to the pricing of Financial Derivatives". Well, it is a bit early for such a Wikipedia entry given Deriscope's recent birth date of August 2017. But the above description still applies and makes...
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1332 Hits
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Beyond Black Scholes: European Options without Dividends

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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 "embe...
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Using a Forex Trading Simulator in Excel

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In my last post I showed you how to use the Deriscope Stock Trading Simulator Excel spreadsheet to place simulated BUY and SELL market orders on US stocks traded on IEX (the Investors Exchange )  In this post I will guide you through another Excel spreadsheet called DsTradingSimulatorFX.xlsm that you can also download for free. This new spread...
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Using a Stock Trading Simulator in Excel

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As I promised you in my previous article I am back with a review of a Stock Trading Simulator that works in Excel and does not suffer from the mentioned drawbacks that hamper all other available free simulators. ​ Apologies for the long time gap since my earlier post, but I wanted to provide you with the very latest version of the Simulator describ...
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Should I use a Trading Simulator to learn how to trade?

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Have you ever thought of being a trader?  I mean trading things like stocks, currencies, options or anything else that you can buy and sell almost instantly - typically online - by pressing a button and not illiquid assets, such as houses or antique furniture. Wouldn't it be great to get some sense of what real world trading looks like before ...
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212 Hits
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What is the fair price of one dollar?

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Understanding the concept of "TRADABLE" will reveal a surprising answer to this question!   A few years ago, when I was still working as a quant for a big bank in London, my typical good morning question waiting for me in the office would be an abstruse sentence such as: What is the fair price of a custom-made inflation bond convertible into e...
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217 Hits
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Can Excel Spreadsheet Cells contain Objects directly?

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Could Deriscope pace the way for the new generation Excel beast — Object-Oriented UDFs — and what would that mean for the financial industry in particular? Most of financial analysis software libraries used by major banks are written in so-called " Object-Oriented " programming languages, such as C++. In the past, before the Object-Oriented paradig...
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