Technical paper/Options
Managing geopolitical risk in petroleum markets
The authors demonstrate the use of futures and options derivatives to manage risk during extreme conditions in petroleum markets through an analysis of historical shocks to such markets.
Option market-making and vol arbitrage
The agent’s view is factored in to a realised-vs-implied vol model
Using option prices to trade the underlying asset
The authors propose strategies with which to trade the underlying assets of options based on large data sets generated by options trading.
Option pricing under the normal stochastic alpha–beta–rho model with Gaussian quadratures
The authors integrate a Gaussian quadrature for option pricing under the normal alpha–beta–rho model, which they demonstrate to calculate accurate, arbitrage-free price and delta.
Analyzing market sentiment based on the option-implied distribution of stock returns
The authors propose a means to assess market sentiment using the option-implied distribution of stock returns generated from option data, allowing for efficient optimization of complex portfolios.
Rethinking P&L attribution for options
A buy-side perspective on how to decompose the P&L of index options is presented
Joint S&P 500/VIX smile calibration in discrete and continuous time
An arbitrage-free model for exotic options that captures smiles and futures is presented
Smile-consistent basket skew
An analytic approximation for the implied volatility surface of basket options is introduced
Does the term structure of the at-the-money skew really follow a power law?
A power law can fit the ATM skew, but struggles with short maturities
CMS pricing: overdue annuities
An RFR-based pricing and risk management model for CMS and its derivatives is presented
Pricing options using expected profit and loss measures
The authors investigate the pricing of options using an EP-EL approach, finding that this methodology generates large amounts of useful information for option traders.
Trading the vol-of-vol risk premium
Applications of the vol-of-vol parameter for cross-asset derivatives are presented
Vega decomposition for the LV model: an adjoint differentiation approach
Introducing an algorithm for computing vega sensitivities at all strikes and expiries
Sculpting implied volatility surfaces of illiquid assets
From the stock cumulative distribution function an arbitrage-free volatility surface is derived
The contractual dividend bleed
Models for dividend protected options need to compensate for valuation mismatches
Linking performance of vanilla options to the volatility premium
A framework to account for vanilla options' performance in trading strategies is presented
The risk-reversal premium
We show that including risk reversals in an equity portfolio creates a better portfolio compared with a pure index position.
Chebyshev Greeks: smoothing gamma without bias
A numerical method to obtain stable deltas and gammas for complex payoffs is presented
A new fast local volatility model
A local volatility model based on the Bass construction and alternative to Dupire-style models is introduced
Black basket analytics for mid-curves and spread options
A new solution to calibrate derivatives with multiple strikes is proposed
An approximate solution for options market-making
An algorithm for the market-making of options on different underlyings is proposed