AmerPutLSM: Calculating the price of plain vanilla American put

Description Usage Arguments Value Author(s) References See Also Examples

View source: R/AmerPutLSM.R

Description

The function calculates the price of plain vanilla American put with Least Squares Monte Carlo method. The regression model included in the algorithm is quadratic polynomial (Longstaff & Schwartz, 2000).

Usage

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AmerPutLSM(Spot = 1, sigma = 0.2, n = 1000, m = 365, Strike = 1.1, r = 0.06, 
dr = 0, mT = 1)

## S3 method for class 'AmerPut'
print(x, ...)
## S3 method for class 'AmerPut'
summary(object, ...)

Arguments

Spot

Spot price of the underlying asset (e.g. stock).

sigma

Volatility of the underlying asset.

n

Number of paths simulated.

m

Number of time steps in the simulation.

Strike

Strike price of the option.

r

Interest rate of the numeraire currency (e.g. EUR).

dr

Dividend rate of the underlying asset.

mT

Maturity time (years).

x

An object returned by the functions AmerPutLSM.

object

An object returned by the function AmerPutLSM.

...

Not used.

Value

The function returns an object of the class AmerPut that is a list comprising the price calculated, option type, and the entry parameters. Class-specific print function gives the option type information and the price. The price as a single number can be derived using the price function. An overview of the entire object can be seen using the summary function.

Author(s)

Mikhail A. Beketov

References

Longstaff, F.A., and E.S. Schwartz. 2000. Valuing american option by simulation: A simple least-squared approach. The Review of Financial Studies. 14:113-147.

See Also

Functions: price, AmerPutLSM_AV, AmerPutLSM_CV, AsianAmerPutLSM, and QuantoAmerPutLSM.

Examples

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AmerPutLSM()
put<-AmerPutLSM(Spot=14.2, Strike=16.5, n=500, m=100)
put
summary(put)
price(put)
put$price

Example output

Loading required package: mvtnorm
Loading required package: fBasics
Loading required package: timeDate
Loading required package: timeSeries


Rmetrics Package fBasics
Analysing Markets and calculating Basic Statistics
Copyright (C) 2005-2014 Rmetrics Association Zurich
Educational Software for Financial Engineering and Computational Science
Rmetrics is free software and comes with ABSOLUTELY NO WARRANTY.
https://www.rmetrics.org --- Mail to: info@rmetrics.org
American Put Option
Price: 0.1173262American Put Option
Price: 2.307947
American Put Option
Method: Simple Least Squares Monte Carlo
                             
Option price         2.307947
Spot price           14.2    
Strike               16.5    
Volatility           0.2     
Number of paths      500     
Number of time-steps 100     
Interest rate        0.06    
Dividend rate        0       
Maturity time        1       
[1] 2.307947
[1] 2.307947

LSMonteCarlo documentation built on May 29, 2017, 11:08 p.m.