The vanna-volga method, also called the traders rule of thumb is an empirical procedure that can be used to infer an implied-volatility smile from three available quotes for a given maturity. It is based on the construction of locally replicating portfolios whose associated hedging costs are...

Bei der Altersvorsorge von Privatanlegern ergibt sich in der derzeitigen Marktsituation die Frage nach der Einführung von Anlageprodukten mit Garantien. Garantien können sich auf das Kapital oder auf eine Mindestrendite beziehen. Produktvarianten können Fonds oder Zertifikate sein. Aus Furcht...

Bei der Altersvorsorge von Privatanlegern boomt in der derzeitigen Marktsituation die Vermarktung von Riesterverträgen. Verschiedene Anbieter versuchen, sich diesen Markt zu erschließen. Neben den Versicherungen haben auch Banken und Investmentgesellschaften Angebote auf den Markt gebracht. In...

We explain the valuation and correlation hedging of Foreign Exchange Basket Options in a multi-dimensional Black-Scholes model that allows including the smile. The technique presented is a fast analytic approximation to an accurate solution of the valuation problem.

The foreign exchange options market is one of the largest and most liquid OTC derivative markets in the world. Surprisingly, very little is known in the academic literature about the construction of the most important object in this market: The implied volatility smile. The smile construction...

In Foreign Exchange Markets vanilla and barrier options are traded frequently. The market standard is a cutoff time of 10:00 a.m. in New York for the strike of vanillas and a knock-out event based on a continuously observed barrier in the inter bank market. However, many clients, particularly...

We focus on closed-form option pricing in Hestons stochastic volatility model, in which closed-form formulas exist only for few option types. Most of these closed-form solutions are constructed from characteristic functions. We follow this approach and derive multivariate characteristic...

In Foreign Exchange Markets Compound options (options on options) are traded frequently. Instalment options generalize the concept of Compound options as they allow the holder to prolong a Vanilla Call or Put option by paying instalments of a discrete payment plan. We derive a closed-form...

This paper aims to unify exotic option closed formulas by generalizing a large class of existing formulas and by setting a framework that allows for further generalizations. The formula presented covers options from the plain vanilla to most, if not all, mountain range exotic options and is...