Use of Calendar in Pricing Engines

[Haoyun XU]

Hi,

I wonder if the trading calendar is used in the numerical pricing engines. For example, we want to price some equity barrier option with discrete dividends using finite difference method. In Black-Scholes constant volatility context, the stock price process goes on even in holidays & weekends. However, these non-tradings days are not eligible for barrier monitoring.

Theoretically, in the finite difference grids, we may need to relax the barrier boundary condition during non-trading days. This also applies to early exercise & other features as well.

For Monte Carlo simulation, these could be handled naturally. Just wonder whether QuantLib takes this into consideration in its implementation for finite difference methods.

Also, I wonder if the pricing engine supports intra-day pricing, which takes into account a fraction of a day.

Many Thanks!

Best,

Henry Xu

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[jojogh]

What is the intra-day pricing. Does it mean the real time pricing?

Ths

Alex Zhang

2013/6/25 Haoyun XU <[hidden email]>

Hi,

I wonder if the trading calendar is used in the numerical pricing engines. For example, we want to price some equity barrier option with discrete dividends using finite difference method. In Black-Scholes constant volatility context, the stock price process goes on even in holidays & weekends. However, these non-tradings days are not eligible for barrier monitoring.

Theoretically, in the finite difference grids, we may need to relax the barrier boundary condition during non-trading days. This also applies to early exercise & other features as well.

For Monte Carlo simulation, these could be handled naturally. Just wonder whether QuantLib takes this into consideration in its implementation for finite difference methods.

Also, I wonder if the pricing engine supports intra-day pricing, which takes into account a fraction of a day.

Many Thanks!

Best,

Henry Xu

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[Luigi Ballabio]

Hi,
    no, the finite-difference engine doesn't take holidays into
account. It just creates a uniform grid; if you tell it to create a
grid of 100 points, it will create them equally spaced (and at that
point, it will be using floating-rate number to represent time; it
will have lost sight of days).

As for intra-day, it depends. If you will specify enough points, it
will advance by a fraction of a day at each step. But the maturity can
only be specified as a day, without time information.

Luigi



On Tue, Jun 25, 2013 at 5:32 AM, Haoyun XU <[hidden email]> wrote:

> Hi,
>
> I wonder if the trading calendar is used in the numerical pricing engines.
> For example, we want to price some equity barrier option with discrete
> dividends using finite difference method. In Black-Scholes constant
> volatility context, the stock price process goes on even in holidays &
> weekends. However, these non-tradings days are not eligible for barrier
> monitoring.
>
> Theoretically, in the finite difference grids, we may need to relax the
> barrier boundary condition during non-trading days. This also applies to
> early exercise & other features as well.
>
> For Monte Carlo simulation, these could be handled naturally. Just wonder
> whether QuantLib takes this into consideration in its implementation for
> finite difference methods.
>
> Also, I wonder if the pricing engine supports intra-day pricing, which takes
> into account a fraction of a day.
>
> Many Thanks!
>
> Best,
> Henry Xu
>
>
>
>
> ------------------------------------------------------------------------------
> This SF.net email is sponsored by Windows:
>
> Build for Windows Store.
>
> http://p.sf.net/sfu/windows-dev2dev
> _______________________________________________
> QuantLib-users mailing list
> [hidden email]
> https://lists.sourceforge.net/lists/listinfo/quantlib-users
>

--
<https://implementingquantlib.blogspot.com>
<https://twitter.com/lballabio>

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