protective.put: Protective Put

In FinancialMath: Financial Mathematics for Actuaries

Description

Gives a table and graphical representation of the payoff and profit of a protective put strategy for a range of future stock prices.

Usage

protective.put(S,K,r,t,sd,price=NA,plot=FALSE)

Arguments

S	spot price at time 0
K	strike price
r	continuously compounded yearly risk free rate
t	time of expiration (in years)
sd	standard deviation of the stock (volatility)
price	specified put price if the Black Scholes pricing is not desired (leave as NA to use the Black Scholes pricing)
plot	tells whether or not to plot the payoff and profit

Details

Stock price at time t =S_t

For S_t<=K: payoff =K-S

For S_t>K: payoff =S_t-S

profit = payoff - price*e^{r*t}

Value

A list of two components.

Payoff	A data frame of different payoffs and profits for given stock prices.
Premium	The price of the put option.

Note

Finds the put price by using the Black Scholes equation by default.

Author(s)

Kameron Penn and Jack Schmidt

See Also

option.put

Examples

protective.put(S=100,K=100,r=.03,t=1,sd=.2)

protective.put(S=100,K=90,r=.01,t=.5,sd=.1)

FinancialMath documentation built on May 1, 2019, 11:16 p.m.