AverageStrikeMC: Average Strike option valuation via Monte Carlo (MC)...

Description Usage Arguments Value Author(s) References Examples

View source: R/AverageStrike.R

Description

Calculates the price of an Average Strike option using Monte Carlo simulations by determining the determine expected payout. Assumes that the input option follows a General Brownian Motion ds = mu * S * dt + sqrt(vol) * S * dz where dz ~ N(0,1) Note that the value of mu (the expected price increase) is assumped to be o$r, the risk free rate of return. Additionally, the averaging period is assumed to be the life of the option.

Usage

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AverageStrikeMC(o = OptPx(o = Opt(Style = "AverageStrike")), NPaths = 5)

Arguments

o

The AverageStrike OptPx option to price.

NPaths

the number of simulations to use in calculating the price,

Value

The original option object o with the price in the field PxMC based on the MC simulations.

Author(s)

Jake Kornblau, Department of Statistics and Department of Computer Science, Rice University, Spring 2015

References

Hull, John C., Options, Futures and Other Derivatives, 9ed, 2014. Prentice Hall. ISBN 978-0-13-345631-8, http://www-2.rotman.utoronto.ca/~hull/ofod/index.html Also, http://www.math.umn.edu/~spirn/5076/Lecture16.pdf

Examples

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(o = AverageStrikeMC())$PxMC   #Price =~ $3.6

  o = OptPx(o = Opt(Style='AverageStrike'), NSteps = 5)
  (o = AverageStrikeMC(o))$PxMC # Price =~ $6

  (o = AverageStrikeMC(NPaths = 20))$PxMC  #Price =~ $3.4

  o = OptPx(o = Opt(Style='AverageStrike'), NSteps = 5)
  (o = AverageStrikeMC(o, NPaths = 20))$PxMC  #Price =~ $5.6

QFRM documentation built on May 2, 2019, 8:26 a.m.