ChooserBS: Chooser option valuation via Black-Scholes (BS) model

In QFRM: Pricing of Vanilla and Exotic Option Contracts

Description

Compute an exotic option that allow the holder decide the option will be a call or put option at some predetermined future date. In a simple case, both put and call option are plain vanilla option. The value of the simple chooser option is \max{C(S,K,t_1),P(S,K,t_2)}. The plain vanilla option is calculated based on the BS model.

Usage

ChooserBS(o = OptPx(Opt(Style = "Chooser")), t1 = 9/12, t2 = 3/12)

Arguments

o	An object of class OptPx
t1	The time to maturity of the call option, measured in years.
t2	The time to maturity of the put option, measured in years.

Value

A list of class SimpleChooserBS consisting of the original OptPx object and the option pricing parameters t1, t2, as well as the computed price PxBS.

Author(s)

Le You, Department of Statistics, 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

• Huang Espen G., Option Pricing Formulas, 2ed. http://down.cenet.org.cn/upfile/10/20083212958160.pdf

• Wee, Lim Tiong, MFE5010 Exotic Options,Notes for Lecture 4 Chooser option. http://www.stat.nus.edu.sg/~stalimtw/MFE5010/PDF/L4chooser.pdf

• Humphreys, Natalia A., ACTS 4302 Principles of Actuarial Models: Financial Economics. Lesson 14: All-or-nothing, Gap, Exchange and Chooser Options.

Examples

(o = ChooserBS())$PxBS

o = Opt(Style='Chooser',Right='Other',S0=50, K=50)
(o = ChooserBS(OptPx(o, r=0.06, q=0.02, vol=0.2),9/12, 3/12))$PxBS

o = Opt(Style='Chooser',Right='Other',S0=50, K=50)
(o = ChooserBS (OptPx(o,r=0.08, q=0, vol=0.25),1/2, 1/4))$PxBS

o = Opt(Style='Chooser',Right='Other',S0=100, K=50)
(o = ChooserBS(OptPx(o,r=0.08, q=0.05, vol=0.3),1/2, 1/4))$PxBS

Example output

[1] 8.164471
[1] 5.420529
[1] 6.107077
[1] 49.49311

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