Topic
Forward start option
About: Forward start option is a research topic. Over the lifetime, 10 publications have been published within this topic receiving 73 citations.
Papers
Book•
14 Apr 2008
TL;DR: In this article, the authors present an overview of the conventional options, forwards and forwards and Greeks, as well as a discussion of their performance in terms of the forward and backward stages.
Abstract: Contents Preface Acknowledgements 1 Introduction 2 Conventional Options, Forwards and Greeks 2.1 Call and Put Options and Forwards 2.2 Pricing Calls and Puts 2.3 Implied Volatility 2.4 Determining the Strike of the Forward 2.5 Pricing of Stock Options Including Dividends 2.6 Pricing Options in Terms of the Forward 2.7 Put-Call Parity 2.8 Delta 2.9 Dynamic Hedging 2.10 Gamma 2.11 Vega 2.12 Theta 2.13 Higher Order Derivatives Like Vanna and Vomma 2.14 Option's Interest Rate Exposure in Terms of Financing the Delta Hedge 3 Profit on Gamma and Relation to Theta 4 Delta Cash and Gamma Cash 4.1 Example Delta and Gamma Cash 5 Skew 5.1 Reasons for Higher Realised Volatility in Falling Markets 5.2 Skew Through Time: 'The Term Structure of Skew' 5.3 Skew and Its Effect on Delta 5.4 Skew in FX versus Skew in Equity: 'Smile versus Downward Sloping' 5.5 Pricing Options Using the Skew Curve 6 Simple Option Strategies 6.1 Call Spread 6.2 Put Spread 6.3 Collar 6.4 Straddle 6.5 Strangle 7 Monte Carlo Processes 7.1 Monte Carlo Process Principle 7.2 Binomial Tree versus Monte Carlo Process 7.3 Binomial Tree Example 7.4 The Workings of the Monte Carlo Process 8 Chooser Option 8.1 Pricing Example Simple Chooser Option 8.2 Rationale Behind Chooser Option Strategies 9 Digital Options 9.1 Choosing the Strikes 9.2 The Call Spread as Proxy for the Digital 9.3 Width of the Call Spread versus Gearing 10 Barrier Options 10.1 Down-and-In Put Option 10.2 Delta Change over the Barrier for a Down-and-In Put Option 10.3 Factors Influencing the Magnitude of the Barrier Shift 10.4 Delta Impact of a Barrier Shift 10.5 Situations to Buy Shares in Case of a Barrier Breach of a Long Down-and-In Put 10.6 Up-and-Out Call 10.7 Up-and-Out Call Option with Rebate 10.8 Vega Exposure Up-and-Out Call Option 10.9 Up-and-Out Put 10.10 Barrier Parity 10.11 Barrier at Maturity Only 10.12 Skew and Barrier Options 10.13 Double Barriers 11 Forward Starting Options 11.1 Forward Starting and Regular Option Compared 11.2 Hedging the Skew Delta of the Forward Start Option 11.3 The Forward Start Option and the Skew Term Structure 11.4 Analytically Short Skew but Dynamically No Skew Exposure 11.5 Forward Starting Greeks 12 Ladder Options 12.1 Example Ladder Option 12.2 Pricing the Ladder Option 13 Lookback Options 13.1 Pricing and Gamma Profile of Fixed Strike Lookback Options 13.2 Pricing and Risk of a Floating Strike Lookback Option 14 Cliquets 14.1 The Ratchet Option 14.2 Risks of a Ratchet Option 15 Reverse Convertibles 15.1 Example Knock-in Reverse Convertible 15.2 Pricing the Knock-in Reverse Convertible 15.3 Market Conditions for Most Attractive Coupon 15.4 Hedging the Reverse Convertible 16 Autocallables 16.1 Example Autocallable Reverse Convertible 16.2 Pricing the Autocallable 16.3 Autocallable Pricing without Conditional Coupon 16.4 Interest/Equity Correlation within the Autocallable 17 Callable and Puttable Reverse Convertible 17.1 Pricing the Callable Reverse Convertible 17.2 Pricing the Puttable Reverse Convertible 18 Asian Options 18.1 Pricing the Geometric Asian Out Option 18.2 Pricing the Arithmetic Asian Out Option 18.3 Delta Hedging the Arithmetic Asian Out Option 18.4 Vega, Gamma and Theta of the Arithmetic Asian Out Option 18.5 Delta Hedging the Asian in Option 18.6 Asian in Forward 18.7 Pricing the Asian in Forward 18.8 Asian in Forward with Optional Early Termination 19 Quanto Options 19.1 Pricing and Correlation Risk of the Option 19.2 Hedging FX Exposure on the Quanto Option 20 Composite Options 20.1 An Example of the Composite Option 20.2 Hedging FX Exposure on the Composite Option 21 Outperformance Options 21.1 Example of an Outperformance Option 21.2 Outperformance Option Described as a Composite Option 21.3 Correlation Position of the Outperformance Option 21.4 Hedging of Outperformance Options 22 Best of andWorst of Options 22.1 Correlation Risk for the Best of Option 22.2 Correlation Risk for the Worst of Option 22.3 Hybrids 23 Variance Swaps 23.1 Variance Swap Payoff Example 23.2 Replicating the Variance Swap with Options 23.3 Greeks of the Variance Swap 23.4 Mystery of Gamma Without Delta 23.5 Realised Variance Volatility versus Standard Deviation 23.6 Event Risk of a Variance Swap versus a Single Option 23.7 Relation Between Vega Exposure and Variance Notional 23.8 Skew Delta 23.9 Vega Convexity 24 Dispersion 24.1 Pricing Basket Options 24.2 Basket Volatility Derived From Its Constituents 24.3 Trading Dispersion 24.4 Quoting Dispersion in Terms of Correlation 24.5 Dispersion Means Trading a Combination of Volatility and Correlation 24.6 Ratio'd Vega Dispersion 24.7 Skew Delta Position Embedded in Dispersion 25 Engineering Financial Structures 25.1 Capital Guaranteed Products 25.2 Attractive Market Conditions for Capital Guaranteed Products 25.3 Exposure Products for the Cautious Equity Investor 25.4 Leveraged Products for the Risk Seeking Investor Appendix A Variance of a Composite Option and Outperformance Option Appendix B Replicating the Variance Swap References Index
30 citations
TL;DR: In this article, the authors investigate model risk aspects of variance swaps and forward-start options in a realistic market setup where the underlying asset price process exhibits stochastic volatility and jumps.
17 citations
TL;DR: In this article, the authors considered the pricing problem of forward start options in the presence of stochastic volatility and regime-switching and derived a closed-form pricing formula in which the only unknown term is the so-called forward characteristic function of the underlying price.
Abstract: In this paper, we consider the pricing problem of forward start options in the presence of stochastic volatility and regime-switching. By making use of the measure transform technique, with the underlying price as a new numeraire, a closed-form pricing formula is derived in which the only unknown term is the so-called forward characteristic function of the underlying price. The analytical expression of the forward characteristic function under the new measure is subsequently obtained in two steps; the first step treats the regime-switching Heston model as a time-dependent Heston model with the information of the Markov chain beingassumed to be given in advance, while the second step takes the expectation with respect to the Markov chain. Finally, the influence of introducing regime-switching into the Heston model is investigated to show the difference in terms of forward start option pricing between the two models.
16 citations
TL;DR: In this article, a martingale pricing technique for options whose payoffs are associated with multiple assets and time points is proposed, and the analytic pricing formula and the formulae of the delta and gamma of the FSRO are first derived.
Abstract: This paper studies the valuation and hedging problems of forward-start rainbow options (FSROs). By combining the characteristics of both multiple assets and forward-start feature, this new type of derivative has many potential applications, for instance, to incorporate the reset provision in rainbow options for investors or hedgers or design more effective executive compensation plans. The main contribution of this paper is a novel martingale pricing technique for options whose payoffs are associated with multiple assets and time points. Equipped with this technique, the analytic pricing formula and the formulae of the delta and gamma of the FSRO are first derived. We conduct numerical experiments to verify these formulae and examine the characteristics of the FSRO’s price and Greek letters. To demonstrate the importance and general applicability of the proposed technique, we also apply it to deriving the pricing formula for the discrete-sampling lookback rainbow options.
14 citations
TL;DR: In this paper, the authors investigate model risk aspects of variance swaps and forward start options in a realistic market setup where the underlying asset price process exhibits stochastic volatility and jumps, and devise a general framework to provide evidence of the model uncertainty attached to variance swaps even when the popular replication result is accounted for.
Abstract: The aim of this paper is to investigate model risk aspects of variance swaps and forward start options in a realistic market setup where the underlying asset price process exhibits stochastic volatility and jumps. We devise a general framework in order to provide evidence of the model uncertainty attached to variance swaps even when the popular replication result is accounted for. Then, we consider the model risk of forward-start options and we show how this risk can be reduced by adding variance swaps in the set of calibration instruments. In the adopted framework, variance swaps and forward-start options can be valued by means of analytic methods. We measure model risk using a set of 21 models representing various dynamics with both continuous and discontinuous sample paths. To conduct our empirical analysis, we work with two major equity indices (S&P 500 and Eurostoxx 50) under different market situations.
12 citations
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Performance Metrics
| Year | Papers |
|---|---|
| 2021 | 1 |
| 2016 | 2 |
| 2015 | 1 |
| 2011 | 1 |
| 2008 | 2 |
| 2007 | 1 |