Technical paper/Options
Using option prices to trade the underlying asset
The authors propose strategies with which to trade the underlying assets of options based on large data sets generated by options trading.
Joint S&P 500/VIX smile calibration in discrete and continuous time
An arbitrage-free model for exotic options that captures smiles and futures is presented
Smile-consistent basket skew
An analytic approximation for the implied volatility surface of basket options is introduced
Does the term structure of the at-the-money skew really follow a power law?
A power law can fit the ATM skew, but struggles with short maturities
CMS pricing: overdue annuities
An RFR-based pricing and risk management model for CMS and its derivatives is presented
Pricing options using expected profit and loss measures
The authors investigate the pricing of options using an EP-EL approach, finding that this methodology generates large amounts of useful information for option traders.
Trading the vol-of-vol risk premium
Applications of the vol-of-vol parameter for cross-asset derivatives are presented
Vega decomposition for the LV model: an adjoint differentiation approach
Introducing an algorithm for computing vega sensitivities at all strikes and expiries
Sculpting implied volatility surfaces of illiquid assets
From the stock cumulative distribution function an arbitrage-free volatility surface is derived
The contractual dividend bleed
Models for dividend protected options need to compensate for valuation mismatches
Linking performance of vanilla options to the volatility premium
A framework to account for vanilla options' performance in trading strategies is presented
The risk-reversal premium
We show that including risk reversals in an equity portfolio creates a better portfolio compared with a pure index position.
Chebyshev Greeks: smoothing gamma without bias
A numerical method to obtain stable deltas and gammas for complex payoffs is presented
A new fast local volatility model
A local volatility model based on the Bass construction and alternative to Dupire-style models is introduced
Black basket analytics for mid-curves and spread options
A new solution to calibrate derivatives with multiple strikes is proposed
An approximate solution for options market-making
An algorithm for the market-making of options on different underlyings is proposed
What is the volatility of an Asian option?
An adjustment for the volatility smile in Asian options is proposed
A verification model to capture option risk and hedging based on a modified underlying beta
This paper analyzes the relationship between option risk and expected return from the perspective of the underlying beta, and estimates the degree of correlation.
Ten laws of operational risk
This paper sets out ten laws that govern the behavior of operational risk relating to the occurrence and detection/duration of events; the rapidity with which firms suffer losses; the lags in crystallization of losses; and internal and external drivers…
Semi-closed-form prices of barrier options in the Hull-White model
New pricer for options with time-dependent barrier shown to be computationally efficient and stable
Strangle to resuscitate: evidence from India
This study examines the performance of two strangle strategies at different legs to find the best strategy for consistent profit generation when trading on the Indian stock market index Nifty.