Project Part III (Static Replication) Suppose on 1-Dec-2020, we need to evaluate an exotic European derivative...
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Project Part III (Static Replication) Suppose on 1-Dec-2020, we need to evaluate an exotic European derivative expiring on 15-Jan-2021 which pays: 1 Payoff function: S +1.5 x log(ST) + 10.0 2 "Model-free" integrated variance: OMFT = E Project (2021-22 Term 1) T 3 [f" o² dt] 0 Determine the price of these 2 derivative contracts if we use: 1 Black-Scholes model (what o should we use?) 2 Bachelier model (what o should we use?) 3 Static-replication of European payoff (using the SABR model calibrated in the previous question) 3/6 QF620 Stochastic Modelling in Finance Project Part III (Static Replication) Suppose on 1-Dec-2020, we need to evaluate an exotic European derivative expiring on 15-Jan-2021 which pays: 1 Payoff function: S +1.5 x log(ST) + 10.0 2 "Model-free" integrated variance: OMFT = E Project (2021-22 Term 1) T 3 [f" o² dt] 0 Determine the price of these 2 derivative contracts if we use: 1 Black-Scholes model (what o should we use?) 2 Bachelier model (what o should we use?) 3 Static-replication of European payoff (using the SABR model calibrated in the previous question) 3/6 QF620 Stochastic Modelling in Finance
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Determine the price of these 2 derivative contracts if we use BlackScholes model what should we use Heston model with Parameters 012 06 12 004 x0 004 CoxIngersollRoss model with Parameters 012 06 12 0... View the full answer
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
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