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spin


Total Posts: 12
Joined: Aug 2007
 
Posted: 2009-01-06 15:19
I'm trying to calculate the fugit of American options, Have you some suggestions? how to calculate it? What is the good method?

Tks

filthy


Total Posts: 1259
Joined: Jun 2004
 
Posted: 2009-01-06 17:12

i hate the word "fugit". just another piece of bullshit made up nomenclature.

anyway, fugit=(rho(american)/rho(euro))*time to expiry


"Game's the same, just got more fierce"

deeds


Total Posts: 405
Joined: Dec 2008
 
Posted: 2009-01-06 17:59

please forgive my stupidity and the incursion of a basic question into a pricing and modelling thread (i'll happily retract my question, if so nudged), but:

filthy, is that in the risk neutral or real world?  (naively, I feel it's likely to be in the risk neutral world...if this is wrong, a gloss as to how it's a real world time would be welcomed warmly by me)

 


filthy


Total Posts: 1259
Joined: Jun 2004
 
Posted: 2009-01-06 18:05
risk neutral. so it isn't very useful

"Game's the same, just got more fierce"

Jaxx


Total Posts: 217
Joined: Nov 2005
 
Posted: 2009-01-06 18:33
i think the word fugit is only really useful if you are trading a CB.

deeds


Total Posts: 405
Joined: Dec 2008
 
Posted: 2009-03-30 08:07

Hi Filthy...I was just reading a little bit of NNT's "Dynamic Hedging" and he proposes something like

Omega =  timetoexpiry * rho2(american)/rho2(european)

where his rho2 is the option price sensitivity to, say, dividends or foreign interest rate (depending on the underlying), rather than more standard rho...

I can't find the original Garman Risk paper that coined the lovely fugit...(I was under the impression that it uses a binomial approach, in any event)...can I ask...is your rho the standard one, or "rho2"?

Do you have much use for this measure in practice?

Do you have much regard for approaches that use real world drift to get a real world time (sometimes seen with barriers in a real options setting)?

thanks in advance for sharing your opinion

d

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