ES of Black-Scholes call using Monte Carlo Simulation

Description

Estimates ES of Black-Scholes call Option using Monte Carlo simulation

Usage

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BlackScholesCallESSim(amountInvested, stockPrice, strike, r, mu, sigma,
  maturity, numberTrials, cl, hp)

Arguments

amountInvested

Total amount paid for the Call Option and is positive (negative) if the option position is long (short)

stockPrice

Stock price of underlying stock

strike

Strike price of the option

r

Risk-free rate

mu

Expected rate of return on the underlying asset and is in annualised term

sigma

Volatility of the underlying stock and is in annualised term

maturity

The term to maturity of the option in days

numberTrials

The number of interations in the Monte Carlo simulation exercise

cl

Confidence level for which ES is computed and is scalar

hp

Holding period of the option in days and is scalar

Value

ES

Author(s)

Dinesh Acharya

References

Dowd, Kevin. Measuring Market Risk, Wiley, 2007.

Lyuu, Yuh-Dauh. Financial Engineering & Computation: Principles, Mathematics, Algorithms, Cambridge University Press, 2002.

Examples

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# Market Risk of American call with given parameters.
   BlackScholesCallESSim(0.20, 27.2, 25, .16, .2, .05, 60, 30, .95, 30)

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