The Magic Formula for Trading Options Risk Free
Вставка
- Опубліковано 4 чер 2022
- In 1978, Breeden and Litzenberger showed how under risk-neutral pricing, that the discounted Risk-Neutral Density (RND) function could be estimated directly from option prices.
In this video we demonstrate how to use the Breeden-Litzenberger formula to derive the risk-neutral density function from European call options with stochastic volatilty under the Heston model. We price the call options using the semi-analytical solution for the Heston model using rectangular integration and compare this to the QuantLib implementation in Python. Here we compare the differences in prices and explain why there are differences - floating point errors.
Once we have the option prices (or possibly market prices) we can implement the Breeden-Litzenberger formula easily using pandas dataframe shift functions. To utilise the estimated pdf within other calculations, we need to make use of scipy's interpolation function. The Risk-Neutral Density function can they be used to price other complex derivatives given a time to maturity.
★ ★ Code Available on GitHub ★ ★
GitHub: github.com/TheQuantPy
Specific Tutorial Link: github.com/TheQuantPy/youtube...
★ ★ QuantPy GitHub ★ ★
Collection of resources used on QuantPy UA-cam channel. github.com/thequantpy
★ ★ Discord Community ★ ★
Join a small niche community of like-minded quants on discord. / discord
★ ★ Support our Patreon Community ★ ★
Get access to Jupyter Notebooks that can run in the browser without downloading python.
/ quantpy
★ ★ ThetaData API ★ ★
ThetaData's API provides both realtime and historical options data for end-of-day, and intraday trades and quotes. Use coupon 'QPY1' to receive 20% off on your first month.
www.thetadata.net/
★ ★ Online Quant Tutorials ★ ★
WEBSITE: quantpy.com.au
★ ★ Contact Us ★ ★
EMAIL: pythonforquants@gmail.com
Disclaimer: All ideas, opinions, recommendations and/or forecasts, expressed or implied in this content, are for informational and educational purposes only and should not be construed as financial product advice or an inducement or instruction to invest, trade, and/or speculate in the markets. Any action or refraining from action; investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied in this content, are committed at your own risk an consequence, financial or otherwise. As an affiliate of ThetaData, QuantPy Pty Ltd is compensated for any purchases made through the link provided in this description.
Another good read on this is from Robert Martin on his blog - reasonable deviations
Awesome videos, a lot of useful information. Please keep doing this!!!!!
Кирилл, привет! А ты изучаешь квантовые финансы сейчас?
Incredible content congratulations!
The best content I saw on UA-cam. Do you have any videos in which you recommend math books?
Cheers, I appreciate the comment. Yes ua-cam.com/video/ZSavDAaKy50/v-deo.html
I have been following your videos and now I have some questions. What is next? Someone should seek opportunities with different price (ej: My broker tell me the option "a" has a price of 0.35, but in my model I price is 0.36, so its "cheaper than should be" so I bought it?). Sorry for my english. I am from Chile and I really enjoy your videos. Best regards and thanks for the knowledge
This is awesome
Wonderful
To improve your integration you may be able to use the Romberg method
Really useful content.I have been using MATLAB so far and would like to learn more about Python.
Thanks for the comment, after Matlab, you’ll find python a natural progression
Very interesting. Do you know how this could be done using American options? I don't think Breeden-Litzenberger would work.
Curious about this as well
could you show it in action? Maybe some trades of it
Love the videos!! Can you please make a vid on Sticky Delta/Sticky Strike and how it touches on the Spot-Vol covariance?
Good stuff. Ex quant?
any way to convert the formula for European option to the one for American option?
Hello sir
I'm from india i used to trade in indian indices which expires every week of Thursday. Are there any indices in asx which expires on every Thursday with good volume
I think you really mean risk neutral!!
Why are you using 365 days and not 252 (or 254 as I’ve seen in some HFund white papers)?
Heston model uses continuous time in years. 365 days in a year.
Sometimes when using market data, there are 252 (estimated) trading days per year.
It s all good,.Can you make money in options? That is all that matter.
No just lost money
@@28jery you can make it up in volume
this is only for brainy people not an idiot like me,
hi sir i am indian name Rohit Gangal I want to make Trading System on indian stock market would you like to help me or any charges