Analytical pricing of an American perpetual call

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Description

Pricing of an American perpetual call option using an analytical formula

Usage

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am_call_perpetual(S, K, r, y, sigma)

Arguments

S

spot price

K

exercise price

r

risk-free interest rate

y

dividend yield from underlying asset

sigma

volatility

Details

A perpetual option is one with no maturity date. This obviously applies only to the case of American-style options. Analytical formulas are available in this case both for call and put options.

Value

call_price

Option price

Author(s)

Paolo Zagaglia, paolo.zagaglia@gmail.com

References

John Hull, "Options, Futures and other Derivative Securities", Prentice-Hall, second edition, 1993.

Examples

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rm(list=ls())

S<-50.0 
K<-40.0
r<-0.05 
y<-0.02
sigma<-0.05

call_price_perpetual<-am_call_perpetual(S, K, r, y, sigma)