arXiv · arXiv q-fin · 2020
Trading option strangles is a highly popular strategy often used by market participants to mitigate volatility risks in their portfolios. In this paper we propose a measure of the relative value of a delta-Symmetric Strangle and compute it under the standard Black-Scholes option pricing model. This new measure accounts for the price of the strangle, relative to the Present Value of the spread between the two strikes,…
Ben Boukai
arXiv · arXiv q-fin · 2006
Families of explicit solutions are found to a nonlinear Black-Scholes equation which incorporates the feedback-effect of a large trader in case of market illiquidity. The typical solution of these families will have a payoff which approximates a strangle. These solutions were used to test numerical schemes for solving a nonlinear Black-Scholes equation.
Ljudmila A. Bordag, Alina Z. Chmakova
arXiv · arXiv q-fin · 2026
Short-dated index options make scheduled macro-announcement risk visible in market prices, but visibility does not imply identification: a flexible no-event surface fitted to event-spanning quotes can absorb event premia, while a jump calibrated without event-spanning quotes is unidentified. To separate the continuous surface from the scheduled jump, we model Federal Open Market Committee (FOMC) decisions, Consumer P…
Tenghan Zhong
arXiv · arXiv q-fin · 2025
This work analytically characterizes impermanent loss for automated market makers (AMMs) in decentralized markets such as Uniswap or Balancer (CPMM). We derive a static replication formula for the pool's value using a combination of European calls and puts. Furthermore, we establish a result guaranteeing hedging coverage for all final prices within a predefined interval. These theoretical results motivate a numerical…
Agustin Muñoz Gonzalez, Juan Ignacio Sequeira, Ariel Dembling
arXiv · arXiv q-fin · 2024
This paper studies pricing of weather-derivative (WD) contracts on temperature and precipitation. For temperature-linked strangles in Toronto and Chicago, we benchmark a harmonic-regression/ARMA model against a feed-forward neural network (NN), finding that the NN reduces out-of-sample mean-squared error (MSE) and materially shifts December fair values relative to both the time-series model and the industry-standard …
Marco Hening Tallarico, Pablo Olivares
arXiv · arXiv q-fin · 2022
This paper investigates the optimal choices of financial derivatives to complete a financial market in the framework of stochastic volatility (SV) models. We introduce an efficient and accurate simulation-based method, applicable to generalized diffusion models, to approximate the optimal derivatives-based portfolio strategy. We build upon the double optimization approach (i.e. expected utility maximization and risk …
Matt Davison, Marcos Escobar-Anel, Yichen Zhu
arXiv · arXiv q-fin · 2016
The performance of trend following strategies can be ascribed to the difference between long-term and short-term realized variance. We revisit this general result and show that it holds for various definitions of trend strategies. This explains the positive convexity of the aggregate performance of Commodity Trading Advisors (CTAs) which -- when adequately measured -- turns out to be much stronger than anticipated. W…
Tung-Lam Dao, Trung-Tu Nguyen, Cyril Deremble, Yves Lempérière, Jean-Philippe Bouchaud