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Derivative Engines - Options Handbook
Introduction
Definition
Call / Put
Strike Price
Volatility
Implied Volatility
Pricing Options
Greeks
Delta Hedging
Volatility Trading
Currency Options
Moneyness
Strike vs Volatility
25 Delta BF & RR
Volatility Matrix
Option Types
Vanilla Options
Barrier Options
Knock In
Knock Out
Double Knock In
Double Knock Out
Knock In - Knock Out
Window Barrier Options
Binary Options
One Touch
No Touch
Double No Touch
Double One Touch
European Digital
European Digital Range
Range Accrual Options
Implied Volatility:
The implied volatility in the
options
market is the
volatility
implied by the market price of the option based on an
option pricing
model. The Black Scholes model is the generaly accepted model for pricing options.
In the OTC options market, quotations are given as volatility. A quoted volatility in the market is the volatility for a specific tenor and
moneyness
. For different moneyness levels the implied volatility of the options change. This causes the need to quote different volatilities for each
strike
level which is praticaly not possible.
In the market some standart moneyness levels are accepted as benchmark and these levels are the most traded and liquid levels. The most liquid moneyness levels are at the money, 25 delta out of the money and 25 delta in the money levels for the currency options. If a demand comes to the market maker to price an option with 15 delta moneyness level, the market maker should use a model to interpolate the volatility of the 15 delta moneyness level by using the standart quotations in the market. (At the money, 25 delta in the money, 25 delta out of the money)
Derivative Engines
Real Time option pricing calculators
get these standart quotations from various brokers and interpolate any moneyness level volatility by using Vanna Volga Method.
Derivative Engines is a Real Time option calculator. Please see the online option pricers below.
Options
Structured Products
Vanilla Options
Dual Currency Deposit
Multiple Options Portfolio
Asymetric Forward
Knock In Barrier Options
Zero Cost Collar
Knock Out Barrier Options
Seagull (3 Way Collar)