Resources

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

Options

Includes articles relating to pricing financial options in Excel through Deriscope

Subcategories from this category:

Beyond Black Scholes
Ioannis Rigopoulos

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

cover
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 ...
Continue reading
  570 Hits
  0 Comments
570 Hits
0 Comments
Ioannis Rigopoulos

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

cover
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...
Continue reading
  767 Hits
  0 Comments
767 Hits
0 Comments
Ioannis Rigopoulos

Combining Randomized Quasi Monte Carlo (Sobol) and Parallel Processing (Multithreading) when Pricing Derivatives in Excel

cover
The beauty of Monte Carlo simulation is that it can be used to price any European financial derivative contract, of which the terminal payoff is expressed as a function of D terminal underlying factors by simulating the terminal values of these factors as of the contract's maturity date.It turns out, the successful execution of a Monte Carlo simula...
Continue reading
  886 Hits
  0 Comments
886 Hits
0 Comments
Ioannis Rigopoulos

Monte Carlo Pricing of any European Structured Product in Excel: Revisiting the Morgan Stanley Trigger Plus 2024 Note

cover
In my previous article I showed how one can use Deriscope in Excel to calculate the price of a particular type of a structured product that pays the minimum of two equity indices observed at some specified future terminal time. As example was used the Trigger Plus note issued by Morgan Stanley on April 1, 2019, which is based on the value of t...
Continue reading
  1166 Hits
  0 Comments
1166 Hits
0 Comments
Ioannis Rigopoulos

Pricing Structured Products in Excel: The Morgan Stanley Trigger Plus 2024 Note

cover
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...
Continue reading
  1940 Hits
  0 Comments
1940 Hits
0 Comments
Ioannis Rigopoulos

Pricing of Risk Scaling Options in Excel

cover
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...
Continue reading
  1200 Hits
  0 Comments
1200 Hits
0 Comments
Ioannis Rigopoulos

Using Quantos to gain exposure on Foreign Assets without the Currency Risk: Yes, but be careful!

cover
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...
Continue reading
  2772 Hits
  0 Comments
2772 Hits
0 Comments
Ioannis Rigopoulos

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

cover
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 cal...
Continue reading
  5767 Hits
  0 Comments
5767 Hits
0 Comments
Ioannis Rigopoulos

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

cover
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,...
Continue reading
  5873 Hits
  0 Comments
5873 Hits
0 Comments
Ioannis Rigopoulos

Asian Option Pricing in Excel using QuantLib: Monte Carlo, Finite Differences, Analytic models for Arithmetic and Geometric Average. Example with live EUR/USD rate

cover
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 price...
Continue reading
  3829 Hits
  0 Comments
3829 Hits
0 Comments
Ioannis Rigopoulos

Swaption Pricing in Excel: 14 Free QuantLib Models plus Implied Volatility Surface and Cube

cover
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 not...
Continue reading
  6856 Hits
  0 Comments
6856 Hits
0 Comments
Ioannis Rigopoulos

Beyond Black Scholes: American Option Price Dependence on Dividend Payment Time

cover
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 under...
Continue reading
  2976 Hits
  0 Comments
2976 Hits
0 Comments
Ioannis Rigopoulos

Beyond Black Scholes: American Options without Dividends

cover1
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 cho...
Continue reading
  2417 Hits
  0 Comments
2417 Hits
0 Comments
Ioannis Rigopoulos

Beyond Black Scholes: European Options with Discrete Dividends

cover
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-line...
Continue reading
  2280 Hits
  0 Comments
2280 Hits
0 Comments
Ioannis Rigopoulos

Introduction to Deriscope – Part 3: Pricing a Stock Option

SelectPriceScreenshot
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 invok...
Continue reading
  1353 Hits
  0 Comments
1353 Hits
0 Comments
Ioannis Rigopoulos

Introduction to Deriscope – Part 2: Creating a Stock Option

Initial
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 t...
Continue reading
  1838 Hits
  0 Comments
1838 Hits
0 Comments
Ioannis Rigopoulos

Beyond Black Scholes: European Options without Dividends

option-signs
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 "embedd...
Continue reading
  1175 Hits
  0 Comments
1175 Hits
0 Comments