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The embedded "option cost" can be quantified by subtracting the OAS from the Z-spread (which ignores optionality and volatility). Since prepayments typically rise as interest rates fall and vice versa, the basic (pass-through) MBS typically has negative bond convexity (second derivative of price over yield), meaning that the price has more ...
Quality and acceptance vary worldwide for IT security credentials, from well-known and high-quality examples like a master's degree in the field from an accredited school, CISSP, and Microsoft certification, to a controversial list of many dozens of lesser-known credentials and organizations.
It consists of adjusting the Black–Scholes theoretical value (BSTV) by the cost of a portfolio which hedges three main risks associated to the volatility of the option: the Vega, the Vanna and the Volga. The Vanna is the sensitivity of the Vega with respect to a change in the spot FX rate:
Calculating fair value: By comparing implied volatility with historical volatility, you can determine whether an option is fairly priced. If IV is significantly higher than HV, it may suggest that ...
A volatility exchange-traded fund (ETF) lets traders bet on an increase in the stock market’s volatility. It can be a highly profitable wager if the market suddenly becomes more volatile, for ...
Volatility of underlying: The underlying security is a constantly changing entity. The volatility is the degree of its price fluctuations. A share which fluctuates 5% on either side on daily basis has more volatility than stable blue chip shares whose fluctuation is more benign at 2–3%. Volatility affects calls and puts alike.
The cost of holding a position in the underlying security, including interest and dividends; The time to expiration together with any restrictions on when exercise may occur; an estimate of the future volatility of the underlying security's price over the life of the option
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