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Apr 28

Down and Out Call Barrier Option

Posted by abiao at 09:29 | Code » Mathematica | Comments(0) | Reads(10469)
This post is writen by Jovan, one of our contributors currently studying MFE, thanks, Jovan.

A couple of weeks ago one of my friends had an interview at a local hedge fund and he had to prepare Greeks of exotics, so we decided to plot them. In Uwe Wystup’s book, Options in FX markets there is a nice and very clear analytical solution, and mathematica 7  is good in symbolic so the code just takes the derivatives and plots them.  Also to check the solution of down and out call we plotted the down and in call and their payoff combines into a regular call so that there wasn’t a mistake. If you do not have mathematica there is a mathematica free file viewer form Wolfram.

Together with the codes there is a mini manipulate idea where you can see the interaction of the Greeks with other input parameters  such as a Barrier where you see that the delta explodes when you are close to expiry and to the barriers. Uwe Wystup suggests that then one should do a barrier shift to prevent this so that one should rehedge your portfolio based on that shifted barrier. If you are interested to see this please download the attached Mathematica files and check it out.


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