Useful option pricing approximations

In this article, I will review some option pricing approximations that can be useful to verify the results given by the pricer you just implemented or to answer some interview questions. Here are the points I am going to tackle : Basic At-The-Money option approximation Examples Other approximations Negative volatility ?? Basic ATM approximation The … Continue reading Useful option pricing approximations

Barrier option pricing with Monte Carlo

In this short article, I will apply Monte Carlo to barrier option pricing. Here are the points I am going to tackle: Quicker barrier options reminder Pros and cons of Monte Carlo for pricing Steps for Monte Carlo Pricing Up-and-Out Call pricing example Conclusion and ideas for better performance Barrier options Before entering in pricing … Continue reading Barrier option pricing with Monte Carlo

How to be Gamma and Theta positive?

This is a question frequently asked during technical interviews. I will try to answer it through this short article giving examples and the logic behind them. Here are the main points I deal with here: Reminder: Gamma and Theta Black Scholes vs Real World Vertical Spread Conclusion - Smile skew Gamma Gamma is defined as … Continue reading How to be Gamma and Theta positive?