Re: P(S(T) < K) ?

Posted by BL BL on Oct 30, 2015; 8:27am
URL: http://quantlib.414.s1.nabble.com/P-S-T-K-tp17002p17006.html

In addition to what peter said:

If you take the inflated price of a digital option and if you use a call spread pricing as a proxy for this price you are able to include the observed market smile in your probability calculation.

If you just take the probablility from the Black formula as suggested in the thread you mentioned, you wont be able to fully include this smile.

And as your initial thread also mentioned: If your are looking for a real world probability you would have to estimate the volatility yourself from maybe historical prices. Then you would likely again use the formula given in the thread.

2015-10-28 8:33 GMT+01:00 Jaroslav Tupý <[hidden email]>:

Hi,

Does anyone know if jquantlib has a way of answering the question "What's the probability of a stock being below a price in N days?" (given volatility, risk free rate, etc.) Something similar to what's being discussed in this thread:
http://quant.stackexchange.com/questions/7169/how-to-calculate-stock-move-probability-based-on-option-implied-volatility-and-t

Thanks
Jaroslav



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