Research: new option type "Chameleon option" :-)

[thecoder]

In that said private discussion we have cleared that:

1) FairPut does NOT create any arbitrage.

2) all 3 of CALL, PUT, and FairPUT can co-exist
(though nobody would use PUT anymore, as was also intended with FairPUT , because the payoff of FairPUT is better than the payoff of PUT).

3) such a pricing system can very well work also in such lognormal markets like the equity options market.

4) stock price becoming zero is no problem at all for the math, by using DBL_EPSILON for zero.
DBL_EPSILON is the smallest floating point value above zero, ie. this prevents following error types:
divide-by-zero, inifinity, not-a-number. It should be applied to S, t, s. Like so: S=max(DBL_EPSILON, S); .

.

 

[VolSkewTrader]

In that said private discussion we have cleared that:

1) FairPut does NOT create any arbitrage.

2) all 3 of CALL, PUT, and FairPUT can co-exist
(though nobody would use PUT anymore, as was also intended with FairPUT ).

3) such a pricing system can very well work also in such lognormal markets like the equity options market.

4) stock price becoming zero is no problem at all for the math, by using DBL_EPSILON for zero.
DBL_EPSILON is the smallest floating point value above zero, ie. this prevents following error types:
divide-by-zero, inifinity, not-a-number. It should be applied to S, t, s. Like so: S=max(DBL_EPSILON, S); .

.

You completely misinterpreted and didn't get what I was telling you. FairPuts would be arbed to oblivion. FairPuts canNOT co-exist with regular calls and puts. FairPuts don't work in lognormal markets. And FairPuts fail miserably when the stock price goes to zero.

 

[thecoder]

In that said private discussion we have cleared that:

1) FairPut does NOT create any arbitrage.

2) all 3 of CALL, PUT, and FairPUT can co-exist
(though nobody would use PUT anymore, as was also intended with FairPUT , because the payoff of FairPUT is better than the payoff of PUT).

3) such a pricing system can very well work also in such lognormal markets like the equity options market.

4) stock price becoming zero is no problem at all for the math, by using DBL_EPSILON for zero.
DBL_EPSILON is the smallest floating point value above zero, ie. this prevents following error types:
divide-by-zero, inifinity, not-a-number. It should be applied to S, t, s. Like so: S=max(DBL_EPSILON, S); .

.

And all of the above said applies not only to BSM, but also to the new FPM option pricing model that is intended as a replacement/successor for the BSM model b/c BSM is mathematically incorrect.

 

[thecoder]

You completely misinterpreted and didn't get what I was telling you. FairPuts would be arbed to oblivion. FairPuts canNOT co-exist with regular calls and puts. FairPuts don't work in lognormal markets. And FairPuts fail miserably when the stock price goes to zero.

Hmm. I invite other experts to check & verify of what really was said in that discussion and what results & conclusions were achieved.

Take a look at this and tell me how you can create arbitrage at all, either for the used spots there (100, 120, and 83.333333) or just come up with your own option parameter set(s) for entry and exit:
https://www.elitetrader.com/et/threads/the-fairput-initiative.349291/page-14#post-5201210
Ie. I'm asking you to prove your claim that FairPut would create arbitrage.

 

[Stamamarti]

Hmm. I invite other experts to check & verify of what really was said in that discussion and what results & conclusions were achieved.[/

 

[Stamamarti]

 

[thecoder]

Practical definition of Arbitrage by thecoder, 2020-09-13-Su:

Of arbitrage one can talk only if the option parameters of entry stay the same at expiry
(especially S, except of course t), and at expiry the trade as a whole has a payoff different from zero.
(Remember: payoff can also be negative, and that payoff does not mean profit!)

This luckily does not happen and cannot happen with FairPut. Q.E.D.

 

[destriero]

You're arguing for dynamic replication. It's the basic tenet of all pricing models yet index skew somehow exists. smh. You're such a dump truck.

 

[thecoder]

destriero the braindamaged off-topic master of ET wrote another unrelated, just guess what ...:

You're arguing for dynamic replication. It's the basic tenet of all pricing models yet index skew somehow exists. smh.

Wow! And how is that "dynamic replication" and "index skew" stuff anyhow related to my posting?
By throwing some catchwords to the discussion does not make you an expert.
Take your Alz medication, you idiot!

 

[VolSkewTrader]

@thecoder You remind me of someone I knew in college who had zero common sense, was socially retarded, and also incredibly pig-headed about his beliefs and views. Even though his 34 ACT and 1520 SAT scores got him accepted early admission, I still think he's one of the dumbest people I've ever met.