Models, data and technology in capital markets are very complex and costly. Many small to medium-sized enterprises might not have
the money or resources to implement or support their own trading and risk services, not to mention individual market players.
They are often hardly aware of those services can have serious effects on their long-term ability to make better business decisions.
To price an option, one needs implied volatility beside yield curve. An implied volatility is the volatility implied by the market
price of an option based on the Black-Scholes option pricing model. The pricing accuracy and pricing performance of option models
crucially depends on absence of arbitrage in the implied volatility surface: an input implied volatility surface that is not
arbitrage-free invariably results in negative transition probabilities and/ or negative volatilities, and ultimately, into mispricings.
Capped Accumulated Return Call with Volatility Surface
Volatility surface for capped-accumulated-return-call (CARC) is studied. Proprietary approaches to interpreting volatility surface are employed during pricing. To accelerate the convergence when low discrepancy sequences are used in Monte Carlo simulation (Quasi-Monte Carlo simulation), the Brownian Bridge Path Construction has been employed in some CARC transactions.A pricing model for capped-accumulated-return-call (CARC) with volatility surface is presented. Proprietary approaches to interpreting volatility surface are employed during pricing. To accelerate the convergence when low discrepancy sequences are used in Monte Carlo simulation (Quasi-Monte Carlo simulation), the Brownian Bridge Path Construction has been employed in some CARC transactions.
Repo Curve
A repo curve calibration methodology is presented to bring it more consistent with market quotation. Instead of a fixed term structure for an issuer, the repo curve in essence becomes a “repo factor collection” in which a constant repo factor is stored with respect to each outstanding bond of the issuer.