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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
Strike vs. Volatility
Black & Scholes model assumes that
volatility
is constant for any
strike
level and compounded returns of the prices has a normal distribution.
In market practise it is seen that the likelihood of rare events are much greater than that the normal distribution anticipates. Black and Scholes model is used in the market for its robustness and simplicity but is modified to fit the real market conditions.
Black & Scholes model is used to calculate the
value
of the currency options but the volatility used for each
moneyness
level for a certain expiry date changes. Since the probability of realizing rare events is greater than the normal distrubtion anticipates, option market demands greater volatility for out of the money options than at the money options. The volatility curve changing with the moneyness of the option is called
volatility smile
.
Derivative Engines
Real Time Option Calculators
get the standart quoted volatility data from brokers for several time to expiration periods. When user tries to price an option with any moneyness level with Derivative Engines, real time option calculator generates the volatiltiy for the requested strike and moneyness level with 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)