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Blog-style articles that help you understand derivatives better by pricing them in Excel.
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Articles relating to foreign exchange related products that may be built in Excel using Deriscope

Pricing FX Options in Excel using Risk Reversal and Butterfly Market Quotes. The USD / Indian Rupee Case

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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 v...
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Almost Corporate-Ready Unlimited-Currency FX Option Portfolio Pricing with and without Excel

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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 last ...
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Valuing a Portfolio of Multi-Currency FX Options and Producing its Value at Risk in Excel using Deriscope

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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 Deri...
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Currency Swaps and Basis Curves in Excel

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​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 ...
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FX Spots, Forwards, Swaps and Curves in Excel

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​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 we...
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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 to t...
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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 currenc...
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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.  Table Of Contents​ Asian Option Description Creating all four types of Asian ...
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