potential

Apache is functioning normally

The Federal Housing Administration (FHA) published a new draft version of a Mortgagee Letter (ML) on Thursday that would update the mortgage insurance requirements on single-family homes with accessory dwelling units (ADU). The proposal is designed to offer additional flexibility for calculating market rent and using ADU rental income to help qualify for FHA-insured mortgage financing.

“If finalized, these updates would allow more borrowers to qualify for FHA financing for properties with ADUs, including 203(k) renovation loans,” the FHA said in its announcement. “FHA’s action today advances the goals of the Biden-Harris Administration’s Housing Supply Action Plan.”

While FHA policy does permit the purchase, rehabilitation or refinance of properties with ADUs, current policy does not allow for the inclusion of rental income from an ADU in a potential borrower’s qualifying income, FHA explained.

“This [ML] establishes protocols for the Appraiser’s analysis and reporting of [ADU] market rent on appraisals and for consideration of this rental income in underwriting forward mortgages and performing the financial assessment for Home Equity Conversion Mortgages (HECM),” the draft ML reads.

HECM is the FHA-sponsored reverse mortgage program, and the related financial assessment requires lenders to assess a borrower’s financial and credit history to determine their ability to cover a reverse mortgage loan’s monthly obligations. The related financial obligations for HECM loans include property taxes, homeowner’s insurance and homeowner’s association fees, if applicable.

In addition to adding more loan flexibility, the proposal would help to address issues with housing availability and affordability, according to FHA Commissioner Julia Gordon.

“FHA is at the forefront of the Administration’s efforts to increase housing supply and affordability,” Gordon said in a statement. “At a time when housing supply is constrained and ADUs are gaining popularity nationwide, an updated policy has the potential to expand opportunities for low- and moderate-income homeowners to benefit from the wealth-building potential of ADUs while supporting the affordable housing needs of their communities.

The popularity of ADUs has increased in recent years. On the West Coast, Seattle saw a 250% ADU construction increase from 2019 to 2022. In California, demand for ADUs is quickly outpacing supply, according to reports.

Washington state’s Senate also recently passed a bill that would lift restrictions on the construction of “middle housing,” which refers to duplexes, fourplexes and ADUs.

The draft ML has been posted to FHA’s single-family “drafting table,” which includes instructions for stakeholders to submit comments on the proposed guidance.

Source: housingwire.com

Apache is functioning normally

The recent drop in the high cost conforming jumbo loan limit has hurt home sales in higher-priced areas of the country, according to data from the National Association of Realtors.

The latest existing-home sales report revealed that transactions under $400,000 were off just three percent from a year ago, while homes priced at or above $750,000 have declined a startling 47 percent.

“Buyers in higher price ranges are at a severe disadvantage because they have to pay higher interest rates,” said NAR chief economist Lawrence Yun.

“Lower loan limits are having a pronounced impact on trade-up activity at the upper end of the market, which depends more on large downpayments to keep mortgage amounts below the maximums for conventional financing.”

NAR noted that mortgages without government backing, such as jumbo loans, are coming at a cost of nearly two percentage points higher than conventional financing, putting the high-end market at a standstill.

And while a $750,000 price tag seems high, many metropolitan areas throughout the country have plenty of inventory at this pricing threshold, making it difficult for both those looking to refinance and those interested in buying.

“Lower mortgage limits for conventional loans mean upper middle-class home buyers in much of the country, including many areas in the Midwest and South, also have to pay higher interest rates,” Yun added.

Fortunately, new legislation is reportedly in the works to raise the conforming jumbo limit back to levels seen last year, which should spell some relief for these homeowners and potential buyers.

“Every segment of the housing market needs a turnaround to spark an overall housing recovery, which will help the economy to begin to recover,” said NAR president Charles McMillan.

(photo: visitmyluxuryhome.com)

Source: thetruthaboutmortgage.com

Apache is functioning normally

A short supply of homes for sale is a contributing factor to buyers’ dampened spirits.


Joe Raedle/Getty Images

Anyone looking to venture into the housing market got whacked with another jump in mortgage rates last week. That means a return to any semblance of housing affordability is a long shot for now.

Mortgage rates’ recent run-up in tandem with the 10-year Treasury yield is one reason why home affordability has again become a hot topic. Economists and analysts frequently talk about affordability, but there’s no one central way of measuring it. Most measures take home prices, mortgage rates, and median incomes into consideration.

The hurdles to homeownership presented by housing costs relative to income was a topic of conversation even before the pandemic, but buying a house back then looks downright pleasant in hindsight. “For home affordability to return to pre-pandemic levels, mortgage rates must fall to 4%, incomes must rise quickly by 30%, and home prices must drop by 30%,” National Association of Realtors Chief Economist Lawrence Yun said in a statement to Barron’s. “All of these, individually and collectively, are unlikely scenarios.”

Home affordability indexes released by two separate trade groups earlier this month hit record or near-record lows in the second quarter, indicating a difficult environment for purchasing homes.

And this quarter doesn’t look promising: A weekly

Redfin

gauge tracking home sale prices on a rolling four-week basis has risen above year-ago levels for five straight weeks, while mortgage rates this past week hit their highest level in more than 20 years, according to

Freddie Mac
.

Buying a home was already difficult before mortgage rates’ ascent back above 7%. A record share of respondents to

Fannie Mae

‘s survey measuring housing market sentiment, 82%, said in July that it was a bad time to buy a house. “Unsurprisingly, consumers continue to attribute the challenging conditions to high home prices and unfavorable mortgage rates,” Fannie Mae chief economist Doug Duncan said in a statement.

Indeed, assuming a 20% down payment on a $400,000 home, the buyer of a home at last week’s average Freddie Mac mortgage rate would owe roughly $400 more a month than the same week last year.

Compared with 2019’s average rate, at just under 4%, such a buyer would owe $600 more. And that’s before accounting for the impact of rising prices, which as of May were about 46% higher than the same month in 2019, according to S&P CoreLogic Case-Shiller.

A short supply of homes for sale is likely a contributing factor to buyers’ dampened spirits: “Demand has been impacted by affordability headwinds, but low inventory remains the root cause of stalling home sales,” Sam Khater, Freddie Mac’s chief economist, said last week.

Such headwinds may have dented existing-home sales in July. Consensus estimates compiled by FactSet foresee previously owned homes having been sold at a seasonally-adjusted annual rate of roughly 4.14 million in July, down from 4.16 million in June. New home sales, a measure of contract signings to buy newly constructed homes, is expected to rise slightly, to 701,000. Data for both are expected on Tuesday and Wednesday, respectively.

Consensus estimates for August are not yet available, but leading data doesn’t paint a promising picture: a Mortgage Bankers Association index tracking the volume of applications for home loans has hovered less than 4% above record lows in the first two weeks of the month.

Unfavorable conditions in the for-sale market could push would-be buyers towards renting—particularly in southeastern markets where a large number of rental units are under construction, a team of

Goldman Sachs

analysts wrote in a note earlier this week. “While rental affordability is also challenging in absolute terms, the stark deterioration in mortgage affordability has made renting more compelling for potential homeowners,” they said.

With plenty to be pessimistic about when it comes to current home buying conditions, one must wonder: how bad can headwinds get from here? Affordability looks set to improve over the next few years, says CoreLogic chief economist Selma Hepp—even if it remains more difficult compared with prepandemic.

Hepp says she expects home prices to stagnate over the next several years, reducing some of the cost headwind, while new construction provides supply and wages increase. “We have now gone through the biggest shock of loss of affordability,” Hepp told Barron’s. “We’ve gone through the worst, and now it’s a matter of income growth” and readjusting home prices, she said.

Write to Shaina Mishkin at [email protected]

Source: barrons.com

Apache is functioning normally

Earlier this week, the National Association of Realtors sent a letter to FHA Commissioner Carol Galante urging her to rethink the agency’s new mortgage insurance structure.

Since 2011, annual mortgage insurance premiums have risen from 90 basis points to 135 basis points in an effort to shore up reserves at the FHA.

Additionally, many borrowers must now pay the annual MIP for the life of the loan, instead of having it fall off once the loan dips to an LTV of 78%.

As a result, NAR believes hundreds of thousands of renters are being priced out of the real estate market.

They estimate that anywhere between 125,000 and 375,000 potential home buyers now have nowhere to turn for financing, with conventional loans also too expensive thanks to PMI and higher interest rates relative to the FHA.

FHA Loan Payments Up 13% Since 2008

Even with a steady interest rate, FHA loan payments have risen markedly thanks to the new mortgage insurance structure.

On a $150,000 loan set at 4.5%, the monthly payment has increased from $834 to $942 over the past five years.

The fees alone on an FHA loan account for nearly 20% of the mortgage payment thanks to the rising annual MIP and an upfront premium that nearly doubled from 1% to 1.75%.

Despite these increases, FHA loans tend to be cheaper than conventional loans at high LTVs. So these borrowers are effectively priced out if they have little to put down on a home.

This is a problem because NAR notes that the FHA insured more than half of the purchase-money loans made to African Americans and Hispanics in 2012.

Many of those affected are also the youngest homeowners, who have experienced the slowest income growth in recent years.

NAR Wants a Rule Reversal

To offset this potential roadblock, NAR has recommended that the FHA lower annual mortgage insurance premiums and no longer require that they be paid for the life of the loan.

They believe this will slow prepayments of FHA loans, which has hurt the reserve fund of late.  Per HUD data, FHA prepayments were at their highest level in fiscal year 2013 since the end of fiscal year 2004.

And full payoffs with no subsequent refinance with the FHA accounted for 81% of the FHA’s prepayments.

Making the desired changes could keep borrowers with the FHA for a longer period of time and boost revenue.

Unfortunately, HUD made these very changes to their mortgage insurance structure to shore up reserves after capital levels fell below acceptable levels.

The FHA also grew far too much in recent years, and the changes they made could help usher in private capital, which has been the goal of policymakers for a while now.

Lastly, if FHA financing is still the cheapest game in town, it might be hard to convince them to change their ways.

Source: thetruthaboutmortgage.com

Apache is functioning normally

The Heston model is an options pricing model developed to address some of the shortcomings in the Black-Scholes model when pricing European options. In contrast to the Black-Scholes model, the Heston model uses stochastic, not constant, volatility as a key variable to determine option prices.

Developed by mathematician Steve Heston in 1993, this model is thought to be more real-world in nature since implied volatility percentages change during an option’s life. However, the Heston model is just one of many option valuation techniques to consider.

What Is the Heston Model?

The Heston model is used to gauge the value of options. The main difference between this and other models is how volatility is treated. The Heston model for option pricing assumes that volatility is stochastic, or random. That simply means that volatility is treated as a variable, in contrast to other models that assume constant or local volatility.

Option prices are made up of several variables — often referred to as the Greeks. It is important to understand price inputs in order to know how to trade options. Volatility is a major piece of the price of an option. The higher the implied volatility, the more valuable the option is. The Heston approach accounts for this by assuming there is a relationship between a stock’s price and its volatility.

💡 Quick Tip: In order to profit from purchasing a stock, the price has to rise. But an options trading account offers more flexibility, and an options trader might gain if the price rises or falls. This is a high-risk strategy, and investors can lose money if the trade moves in the wrong direction.

How Does the Heston Model Work?

By assuming that volatility is random, many traders believe the Heston option pricing model works better than the Black-Scholes model since it captures the true nature of volatility. The Heston approach is considered a superior model to the Black-Scholes, too. The downside is that it can be more complicated to calculate. Moreover, it can only be used on European options — those that can be exercised only at expiration.

Like other option pricing models, the Heston method attempts to determine the time value piece of an option’s total value. Intrinsic value is straightforward to figure out since it is just the difference between the stock price and strike price. Intrinsic value and time value comprise an option’s total worth.

Heston Model Pros and Cons

The Heston option pricing model has several advantages and disadvantages. By incorporating variable volatility characteristics, an options trader can have more confidence in the Heston model’s output reflecting observed market behavior versus other valuation techniques. The Heston model achieves increased accuracy by considering correlations between the price of a stock and its volatility. It also assumes that volatility exhibits mean reversion.

Additionally, Heston’s approach yields a closed-form solution that can simplify what is a complex mathematical equation.

The Heston model has its limitations. For one thing, the output is only as good as the variables you assume. This model is also thought to be ill-equipped to price options close to expiration due to instances when implied volatility might be extremely high.

Perhaps the biggest downside is its complexity versus Black Scholes and the binomial options pricing model.

Pros Cons
Incorporates more realistic market conditions such as changing volatility levels Only useful on European-style options
Prices options considering the price and maturity variables on volatility Only as good as the inputs used
Yields a closed-form solution that can be used to compare an option’s value to its market price Considered not an accurate gauge to price short-term options with high volatility

Heston vs Black-Scholes Model

Understanding the differences between the Heston model and the Black-Scholes model can help you determine which might work best when you trade options.

Heston Model Black-Scholes Model
Assumes that volatility is random Assumes that volatility is constant
Incorporates a relationship between a stock’s price and its volatility Does not incorporate correlations between a stock’s price and volatility
Can be used in a variety of market conditions Prices options under one set of volatility parameters

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

Heston Model Formula Explained

The Heston volatility model includes several mathematical inputs. Knowing these can help you find the right strategies for trading options. Understanding the model inside and out can arm you with the quantitative armor other traders might not possess.

Here is the full Heston model formula:

Where:

•   St = specific asset price at time t

•   r = the risk-free interest rate, often a short-term Treasury rate

•   √Vt = volatility (standard deviation) of the asset

•   σ = volatility of volatility

•   θ = long-run price variance

•   k = reversion rate to the long-term price variance

•   dt = indefinitely small positive time increment

•   W1t = Brownian motion of the asset price

•   W2t = Brownian motion of the asset’s price variance

Note that the two Brownian motions are negatively correlated. For example, a drop in the asset price will see an increase in volatility. The two Brownians are related by the following equation:

Where ρ is the correlation.

In his original paper describing this model, Heston provided default parameters for the equations above which include:

•   St = 100

•   r = 0

•   Vt = 0.01

•   σ = 0.1

•   θ = 0.01

•   k = 2

•   ρ = 0

•   Option maturity = 0.5 year

Further calibration of the model requires advanced mathematical analysis.

Other Option Pricing Models

The Heston option pricing is just one of many approaches to consider. Let’s outline several of the most common methods you might use to price options.

Binomial Model

The binomial model uses an iterative approach using several periods to value American-style options. It follows a binomial pricing tree, which can be useful in illustrating how option prices change from one period to another. This method is considered intuitive and is used more often than Black-Sholes.

Risk-Neutral Probability

The risk-neutral approach to option pricing assumes that risk is not considered. This method can help a trader assess the true value of an option outside of market risk conditions.

Monte Carlo Simulation

Monte Carlo simulations are sometimes used to gauge the value of options. This method utilizes computer simulations to create thousands of potential outcomes. Option values can be calculated based on the probability-weighted computer output.

Monte Carlo simulation is used to generate realistic market conditions which can be useful for options traders as they attempt to assess how an option value will fluctuate over time. However, it can be time-consuming and costly to run these complex programmatic scenarios.

The Takeaway

The Heston model prices options using stochastic (random) volatility to more accurately model options pricing behavior. The more well-known Black-Scholes option pricing model assumes that implied volatility remains constant.

Some traders believe that the Heston model approach works better to incorporate practical, real-world conditions. Still, there are many techniques to price options for you to consider when you trade.

Qualified investors who are ready to try their hand at options trading, despite the risks involved, might consider checking out SoFi’s options trading platform. The platform’s user-friendly design allows investors to trade through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.

Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors.

With SoFi, user-friendly options trading is finally here.

FAQ

What is the Heston model used for?

The Heston Model is used for pricing European options. It uses stochastic volatility to arrive at pricing outcomes, helping traders value options. If a trader determines that an option is over- or under-valued, they might sell or buy the option, then hold it through expiration or trade out of the position before expiration. It is important to remember that European options, unlike American options, cannot be exercised early.

Is the Heston model better than Black-Scholes?

It’s hard to conclude that the Heston stochastic volatility model is better than the more widely known Black-Scholes model. In contrast to Black-Scholes, the Heston model assumes that volatility can change. The Heston model can be more useful to traders since it assumes implied volatility, an important variable for options pricing, increases as options become more in-the-money or out-of-the-money. While the Heston model is considered to be more accurate, it comes with increased computational complexity or in layman’s terms…it’s slower.

What does stochastic local volatility mean?

Local volatility is a basic application of the Black-Scholes model. It accounts for the requirement to price-in skewness into option values. Stochastic volatility contrasts local volatility in that the former can produce a more real-world forward volatility profile. It’s thought that stochastic volatility can overprice options while local volatility and the Black-Scholes method might underprice options.

Photo credit: iStock/FG Trade

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
SOIN0322020

Source: sofi.com

Apache is functioning normally

The Heston model is an options pricing model developed to address some of the shortcomings in the Black-Scholes model when pricing European options. In contrast to the Black-Scholes model, the Heston model uses stochastic, not constant, volatility as a key variable to determine option prices.

Developed by mathematician Steve Heston in 1993, this model is thought to be more real-world in nature since implied volatility percentages change during an option’s life. However, the Heston model is just one of many option valuation techniques to consider.

What Is the Heston Model?

The Heston model is used to gauge the value of options. The main difference between this and other models is how volatility is treated. The Heston model for option pricing assumes that volatility is stochastic, or random. That simply means that volatility is treated as a variable, in contrast to other models that assume constant or local volatility.

Option prices are made up of several variables — often referred to as the Greeks. It is important to understand price inputs in order to know how to trade options. Volatility is a major piece of the price of an option. The higher the implied volatility, the more valuable the option is. The Heston approach accounts for this by assuming there is a relationship between a stock’s price and its volatility.

💡 Quick Tip: In order to profit from purchasing a stock, the price has to rise. But an options trading account offers more flexibility, and an options trader might gain if the price rises or falls. This is a high-risk strategy, and investors can lose money if the trade moves in the wrong direction.

How Does the Heston Model Work?

By assuming that volatility is random, many traders believe the Heston option pricing model works better than the Black-Scholes model since it captures the true nature of volatility. The Heston approach is considered a superior model to the Black-Scholes, too. The downside is that it can be more complicated to calculate. Moreover, it can only be used on European options — those that can be exercised only at expiration.

Like other option pricing models, the Heston method attempts to determine the time value piece of an option’s total value. Intrinsic value is straightforward to figure out since it is just the difference between the stock price and strike price. Intrinsic value and time value comprise an option’s total worth.

Heston Model Pros and Cons

The Heston option pricing model has several advantages and disadvantages. By incorporating variable volatility characteristics, an options trader can have more confidence in the Heston model’s output reflecting observed market behavior versus other valuation techniques. The Heston model achieves increased accuracy by considering correlations between the price of a stock and its volatility. It also assumes that volatility exhibits mean reversion.

Additionally, Heston’s approach yields a closed-form solution that can simplify what is a complex mathematical equation.

The Heston model has its limitations. For one thing, the output is only as good as the variables you assume. This model is also thought to be ill-equipped to price options close to expiration due to instances when implied volatility might be extremely high.

Perhaps the biggest downside is its complexity versus Black Scholes and the binomial options pricing model.

Pros Cons
Incorporates more realistic market conditions such as changing volatility levels Only useful on European-style options
Prices options considering the price and maturity variables on volatility Only as good as the inputs used
Yields a closed-form solution that can be used to compare an option’s value to its market price Considered not an accurate gauge to price short-term options with high volatility

Heston vs Black-Scholes Model

Understanding the differences between the Heston model and the Black-Scholes model can help you determine which might work best when you trade options.

Heston Model Black-Scholes Model
Assumes that volatility is random Assumes that volatility is constant
Incorporates a relationship between a stock’s price and its volatility Does not incorporate correlations between a stock’s price and volatility
Can be used in a variety of market conditions Prices options under one set of volatility parameters

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

Heston Model Formula Explained

The Heston volatility model includes several mathematical inputs. Knowing these can help you find the right strategies for trading options. Understanding the model inside and out can arm you with the quantitative armor other traders might not possess.

Here is the full Heston model formula:

Where:

•   St = specific asset price at time t

•   r = the risk-free interest rate, often a short-term Treasury rate

•   √Vt = volatility (standard deviation) of the asset

•   σ = volatility of volatility

•   θ = long-run price variance

•   k = reversion rate to the long-term price variance

•   dt = indefinitely small positive time increment

•   W1t = Brownian motion of the asset price

•   W2t = Brownian motion of the asset’s price variance

Note that the two Brownian motions are negatively correlated. For example, a drop in the asset price will see an increase in volatility. The two Brownians are related by the following equation:

Where ρ is the correlation.

In his original paper describing this model, Heston provided default parameters for the equations above which include:

•   St = 100

•   r = 0

•   Vt = 0.01

•   σ = 0.1

•   θ = 0.01

•   k = 2

•   ρ = 0

•   Option maturity = 0.5 year

Further calibration of the model requires advanced mathematical analysis.

Other Option Pricing Models

The Heston option pricing is just one of many approaches to consider. Let’s outline several of the most common methods you might use to price options.

Binomial Model

The binomial model uses an iterative approach using several periods to value American-style options. It follows a binomial pricing tree, which can be useful in illustrating how option prices change from one period to another. This method is considered intuitive and is used more often than Black-Sholes.

Risk-Neutral Probability

The risk-neutral approach to option pricing assumes that risk is not considered. This method can help a trader assess the true value of an option outside of market risk conditions.

Monte Carlo Simulation

Monte Carlo simulations are sometimes used to gauge the value of options. This method utilizes computer simulations to create thousands of potential outcomes. Option values can be calculated based on the probability-weighted computer output.

Monte Carlo simulation is used to generate realistic market conditions which can be useful for options traders as they attempt to assess how an option value will fluctuate over time. However, it can be time-consuming and costly to run these complex programmatic scenarios.

The Takeaway

The Heston model prices options using stochastic (random) volatility to more accurately model options pricing behavior. The more well-known Black-Scholes option pricing model assumes that implied volatility remains constant.

Some traders believe that the Heston model approach works better to incorporate practical, real-world conditions. Still, there are many techniques to price options for you to consider when you trade.

Qualified investors who are ready to try their hand at options trading, despite the risks involved, might consider checking out SoFi’s options trading platform. The platform’s user-friendly design allows investors to trade through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.

Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors.

With SoFi, user-friendly options trading is finally here.

FAQ

What is the Heston model used for?

The Heston Model is used for pricing European options. It uses stochastic volatility to arrive at pricing outcomes, helping traders value options. If a trader determines that an option is over- or under-valued, they might sell or buy the option, then hold it through expiration or trade out of the position before expiration. It is important to remember that European options, unlike American options, cannot be exercised early.

Is the Heston model better than Black-Scholes?

It’s hard to conclude that the Heston stochastic volatility model is better than the more widely known Black-Scholes model. In contrast to Black-Scholes, the Heston model assumes that volatility can change. The Heston model can be more useful to traders since it assumes implied volatility, an important variable for options pricing, increases as options become more in-the-money or out-of-the-money. While the Heston model is considered to be more accurate, it comes with increased computational complexity or in layman’s terms…it’s slower.

What does stochastic local volatility mean?

Local volatility is a basic application of the Black-Scholes model. It accounts for the requirement to price-in skewness into option values. Stochastic volatility contrasts local volatility in that the former can produce a more real-world forward volatility profile. It’s thought that stochastic volatility can overprice options while local volatility and the Black-Scholes method might underprice options.

Photo credit: iStock/FG Trade

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
SOIN0322020

Source: sofi.com

Apache is functioning normally

With the average cost of living throughout the state hovering right at the national average, South Carolina is a friendly and mostly affordable place to live. Rich in so much history, with Civil War sites to walk through today, there’s just something magical about South Carolina.

Even better, the state has low crime rates, plenty of job opportunities, fantastic weather and all the fresh seafood you can eat. Another great state for those who love the outdoors, you’ve got the beach on one side and the mountains on the other.

If you’re thinking all of this sounds perfect, maybe South Carolina is right for your next home. It’s important to see if your budget matches up to the state’s cost of living. By checking out average prices in a few key areas, you can make an educated decision if there’s a South Carolina city that won’t put a strain on your finances.

South Carolina housing prices

The range of housing prices in South Carolina is pretty large. Some cities almost reach the national average while others are significantly below. This is good news for someone who wants to live in one of the best places in South Carolina but has a limited budget.

Charleston

Sandy beaches, a thriving downtown and oh so much history combine to make Charleston a truly special place. Not only is it pretty to look at, but this city’s seafood scene makes it a delicious place to call home. One of the most popular cities in South Carolina, it also has the highest housing prices on our list at only 5.1 percent below the national average.

Rental prices aren’t rising too quickly in Charleston, and costs are relatively low. One-bedrooms are actually more expensive, per month, than two-bedrooms. Up 8 percent over last year, the average monthly rent for a one-bedroom apartment is $1,604. Two-beds average out over $250 less. Up 7 percent over last year, they’ll currently cost you $1,353 a month.

Home prices are on the higher end, and that’s in part because of some of the amazingly large houses in the Charleston area. The median sale price here is $516,000, which is up by 16.8 percent over last year.

Columbia

The state’s capital, Columbia, offers that perfect mix of fast-paced urban and small-town feel. Home to the University of South Carolina, residents are an eclectic mix of college students, families and young professionals. The city is also quite affordable. Housing prices in Columbia are 27.2 percent below the national average.

Rent prices lay on the economical side, with prices having slowly risen since last year. One-bedroom apartments are only up 5 percent, and two-bedroom apartments rose even less at 4 percent. The average monthly price for a one-bedroom is $1,059, and $1,155 for apartments with two-bedroom apartments.

Home prices have also stayed relatively low, rising only 10 percent over last year. The median home price in Columbia is $230,000.

Greenville

As South Carolina’s fastest-growing city, Greenville is full of economic opportunity. All this potential is in a beautiful city within the foothills of the Blue Ridge mountains. Downtown you’ll find plenty of shops, restaurants and a weekend farmers market. The biggest bonus? Housing is actually pretty affordable. Prices are 31 percent below the national average.

Even though rental prices and home sales are rising, you’re still paying a relatively manageable amount. One-bedroom apartments, up 18 percent over last year, have an average monthly rent of $1,422. Two-bedroom apartments, increasing at only 14 percent over last year, have an average monthly rent of $1,605.

Home prices have risen the most, up 28.4 percent, but the median sale price in Greenville is still moderate at $353,000.

Spartanburg

With small-town charm and a quieter pace, Spartanburg still provides residents with a variety of job opportunities. However, the city is still revitalizing, bringing art and culture back. That said, Spartanburg has a lot going for it, and it’s a pretty affordable place. Housing prices here are 17 percent below the national average.

The most growth, when it comes to housing in Spartanburg, is with two-bedroom apartments. Prices are up 22 percent over last year. By comparison, one-beds have only risen 3 percent, and home prices are actually down by 7.5 percent.

Still, even with this big leap, prices aren’t that high in comparison with other South Carolina cities. A two-bedroom apartment is $1,205 a month on average. One-bedrooms are $1,120, and the median home sale price in Spartanburg is $185,000.

South Carolina food prices

Comfort food with a dash of Southern charm is what’s for dinner in South Carolina. You can’t beat a big bowl of shrimp and grits, some freshly made pimento cheese on crackers and a good ol’ Low Country boil. There’s also the ability to buy fresh oysters, pulled from the Intracoastal Waterway hours before. South Carolina is delicious.

When they’re not eating out, South Carolinians spend between $200 and $233 per month on groceries. This accounts for the fact that cities across the state straddle the national average. Some are slightly below, others are slightly above.

  • Greenville is 2.7 percent below the national average
  • Spartanburg is 2.5 percent below the national average
  • Charleston is 2.6 percent above the national average
  • Columbia is 3.2 percent above the national average

What this means, when looking at individual items, is that price differential isn’t too high between cities. Fried chicken in Charleston is less than a dollar more than it costs in Greenville. Potatoes, for your Low Country boil, are less than a dollar more in Greenville than in Columbia.

Overall, ranking a total food price doesn’t always give you insight into which city will have the most expensive foods. It’s best to check what our own shopping list would cost.

Food prices also include what you’d pay for a date night. Here, the prices vary more significantly than when you’re at the grocery store. A three-course meal for two is 46 percent less in Spartanburg than in Columbia and Charleston. It’s the difference between paying $35 in Spartanburg to take your special someone out and paying $65 in both other cities.

South Carolina utility prices

Most energy produced in South Carolina is nuclear energy. Adding this utility bill in with the other big ones — gas, water and internet, South Carolina cities are kind of all over the scale.

  • Greenville is 4.8 percent below the national average
  • Spartanburg is 3.9 percent below the national average
  • Charleston is 16.9 percent above the national average
  • Columbia is 31.2 percent above the national average

When it comes to the actual bills, Columbia has the highest monthly power bill, on average at $270.54. Greenville has the lowest at $160.93.

South Carolina transportation prices

Transportation prices take into consideration all the costs you’d have getting around town. Of course, walking and biking are usually free, but Charleston is really the only city on the list with high walk (63) and bike (64) scores. For most everyone else, it’s car ownership and/or public transportation.

Looking at overall transportation prices:

  • Columbia is 21.4 percent below the national average
  • Charleston is 3.6 percent below the national average
  • Greenville is 3 percent below the national average
  • Spartanburg is 2.8 percent above the national average

Columbia’s prices are so very low as a result of its public transportation network. You can get to almost anywhere in town without having to drive a car. Other cities do provide accessible public transportation that does what it can to move you through the city minus owning a vehicle.

Spartanburg SPARTA

Maybe not the most original name, but the Spartanburg Area Regional Transit Agency, or SPARTA provides bus service throughout the city. Consisting of eight routes, a single fare is $1.25.

Ride passes are also available, so you can find the best deal. For example, a five-day and 10-day pass cost the same at $11.25. A 31-day pass is $37.50.

Greenville Greenlink

Consisting of 12 fixed bus routes moving across Greenville County and a free downtown trolley, Greenlink has its bases covered. To ride the bus, a single fare is $1.50, a day pass is $5 and a 31-day pass is $50.

The trolley moves along Greenville’s Main Street and has five different routes. They don’t all operate on the same schedule, though, so make sure you look up your route to avoid long wait times.

Charleston CARTA

A combination of regular and express routes CARTA passes cost $15 for a seven-day pass and $57 for a 31-day pass. Prices are higher if you need to factor in trips on any express lines. If you need to buy a single fare, the cost is $3.50.

Charleston also has the Downtown Area Shuttle or DASH. This shuttle service includes three lines that move through downtown and are all free.

Columbia COMET

The COMET is easy to spot in Columbia. The buses drive down the road painted in bright, neon colors. Routes stretch across the region and include a shuttle known as the Soda Cap Connector. It goes from one entertainment district to another for just $1.00 per way.

The long list of buses that make up COMET cost $2 per way, but you can buy a day pass for $4 and a 31-day pass for $40.

South Carolina healthcare

Healthcare in South Carolina is relatively affordable. Most cities fall under the national average which means your costs for the dentist, doctor, eye doctor, urgent care and even your medications shouldn’t break the bank.

  • Columbia is 15.7 percent below the national average
  • Charleston is 11 percent below the national average
  • Greenville is 1.9 percent below the national average
  • Spartanburg is 4.9 percent above the national average

What’s important to check, though, is healthcare costs in your city. Based on your needs, you could pay more than average since costs per care item won’t always fall in this city order. For example, a doctor’s visit in Greenville is actually the least expensive on the list at an average cost of $106.67. Charleston, which sits near the lower end overall, has the most expensive doctor’s visit cost with an average bill of $140.

South Carolina goods and services prices

When you look at your budget, you’ll have items on your list that are necessities — food and shelter — and those that you just really enjoy having — going out money. The second category constitutes all the goods and services you use. You don’t need them to survive, but you really like having them, so it’s important you know you can afford them.

Most cities in South Carolina hang close to the national average when it comes to the combined price of goods and services.

  • Charleston is 7.3 percent below the national average
  • Spartanburg is 2.1 percent below the national average
  • Columbia is 0.3 percent above the national average
  • Greenville is 3.7 percent above the national average

It isn’t until you drill down into specific goods and services, though, that you can effectively evaluate whether a city’s prices are too high for you.

According to the citywide averages, Greenville has the highest average prices, but when you look at a few specific items, only that cheesy delicious pizza will cost you more. That’s why it’s best to really evaluate your own budget when thinking about making a move. It’s the little things that will add up.

Budgeting in childcare

When looking at goods and services, it’s not just all the little things you need to think about. There are some not-so-little items that come into play here when you’re at a specific stage of life.

We’re talking about childcare, and sticker shock from paying for a full-day, private preschool is more common than you may think. Monthly costs can and will often get into the thousands, so you need to make sure you’ve got the budget to cover this expense when the time comes.

In our South Carolina cities, Charleston is the most expensive when it comes to childcare at $1,098 per month. Columbia is the most affordable at only $500 per month, on average.

Taxes in South Carolina

The state sales tax rate in South Carolina is 6 percent, but localities are able to add onto that up to 3 percent more. And, while the average sales tax rate is only 7.44 percent, it can get as high as 9 percent.

That means for every $1,000 you spend shopping, at most, you’re paying up to $90 in taxes. Quite a markup.

Looking at our selection of cities, only Charleston reaches this maximum.

  • Greenville has a 6 percent sales tax rate
  • Spartanburg has a 7 percent sales tax rate
  • Columbia has an 8 percent sales tax rate
  • Charleston has a 9 percent sales tax rate

Thankfully, you have options in order to avoid serious markups to compensate for high sales tax. Greenville doesn’t even add any additional tax onto the state rate. You might need to do your big shopping there.

How much do I need to earn to live in South Carolina?

Calculating how much you need to earn to live in South Carolina begins with rent. If you can afford rent, you most likely can afford all the other elements that contribute to your cost of living.

To calculate whether rent is in the budget, start with $1,373. This is the average rent in South Carolina per month. Then, multiply it by 12 to get the total rent you’d pay in a year — $16,476. This number should equal 30 percent of your total income since that’s what most experts say you should put toward rent. Divide $16,476 by 0.3 and you’ll get the minimum salary to make this work — $54,920.

That’s a pretty high salary, and with the average annual wage in South Carolina being $47,490, not everyone’s budget will allow them to afford an average apartment. Thankfully, many places fall below the average, as well as above, so you should have options in less expensive areas.

To get accurate numbers, you can use our rent calculator to plug in your own budget.

Living in South Carolina

Picking South Carolina as your next home base is a great decision. The weather is wonderful. The people are kind. The pace of life is slower, but not boring. You’re surrounded by all kinds of natural beauty. Southern hospitality abounds which means delicious food among other things. You’re also deciding to live in a state with great cities and affordable prices.

Will your budget fit the bill of this great state? Grab the calculator and start adding things up.

The Cost of Living Index comes from coli.org.
The rent information included in this summary is based on a calculation of multifamily rental property inventory on Rent. as of June 2022.
Rent prices are for illustrative purposes only. This information does not constitute a pricing guarantee or financial advice related to the rental market.

Source: rent.com

Apache is functioning normally

Zillow is getting into the mortgage game as it bids to own more of the home buying process. The company has just acquired Mortgage Lenders of America to fuel its new bid, it said in an announcement timed to coincide with its second-quarter earnings report.

The company reported total revenue of $325.2 million for the second quarter, up 22 percent compared to one year ago. Profits came in at 13 cents per share, excluding certain costs, above Wall Street’s estimates of profits of 10 cents a share.

Mortgage Lenders of America is a national brokerage headquartered in Overland Park, Kansas. With the acquisition, Mortgage Lenders’ 300-odd employees will now become a part of the Zillow Group.

Terms of the acquisition were not disclosed.

Zillows move into mortgage lending doesn’t come as a surprise, as the company recently kicked off a new line of business this year that involves buying up homes, doing them up and selling them on. Zillow’s Instant Offers service was first made available in Phoenix, Arizona, and has already been expanded to Las Vegas and Atlanta since then. Now, by acquiring a lender, Zillow can serve its customers during more steps of the home buying process.

“We’re taking our huge advantages, which are our audience and our brand and our resources, and expanding into other business vertically,” Zillow CEO Spencer Rascoff said on the company’s second-quarter earnings call.

Zillow’s audience is certainly big enough, as it reported 186 average monthly users during its most recent quarter, up 4 percent year-over-year. This figure includes all of Zillow’s brands, including Trulia, RealEstate.com and StreetEasy.

“This quarter also marked a major milestone in Zillow Group’s history, as we launched our Homes business and began buying houses directly from homeowners in two cities through Zillow Offers,” Rascoff said in a statement. “At this exciting time in the real estate industry, Zillow Group is committed to developing innovative technology and services, like Zillow Offers and, with today’s announcement, potential for mortgage originations, that help our partners meet evolving consumer expectations, while generating more revenue opportunities.”

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
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Source: realtybiznews.com