ChooserLT: Chooser option valuation via Lattice Tree (LT) Model

In QFRM: Pricing of Vanilla and Exotic Option Contracts

Description

Calculates the price of a Chooser option using a recombining binomial tree model. Has pricing capabilities for both simple European Chooser options as well as American Chooser Options, where exercise can occur any time as a call or put options.

Usage

ChooserLT(o = OptPx(Opt("Chooser", ttm = 1)), t1 = 0.5, t2 = 0.5,
  IncBT = FALSE)

Arguments

o	The OptPx option object to price.
t1	The time to maturity of the call option, measured in years.
t2	The time to maturity of the put option, measured in years.
IncBT	TRUE/FALSE Choice of including the lattice tree simulation in the output. Input FALSE yields faster computation and fewer calculated results to store in memory.

Details

The American chooser option is interpreted as exercise of option being available at any point in time during the life of the option.

Value

An original OptPx object with PxLT field as the price of the option and user-supplied ttc, IncBT parameters attached.

Author(s)

Richard Huang, Department of Statistics, Rice University, spring 2015

References

Hull, J.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
Thomas S.Y. Ho et al., The Oxford Guide to Financial Modeling : Applications for Capital Markets. . .

Examples

(o = ChooserLT())$PxLT    #Default Chooser option price. (See Ho pg 234 in references)

o = Opt('Eu', S0=100, ttm=1, K=100)
o = OptPx(o, r=0.10, q=0, vol=0.1, NSteps=5)
(o = ChooserLT(o, t1 = .5, t2 =.5, IncBT=TRUE))$PxLT

#American Chooser, higher price than European equivalent
o = Opt('Am', S0=100, ttm=1, K=100)
o = OptPx(o, r=0.10, q=0, vol=0.1, NSteps=5)
ChooserLT(o,t1=.5, t2=.5,IncBT=FALSE)$PxLT

o = Opt('Eu', S0=50, ttm=1, K=50)
o = OptPx(o, r=0.05, q=0.02, vol=0.25, NSteps=5)
ChooserLT(o, t1 = .75, t2 = .75, IncBT=FALSE)$PxLT

o = Opt('Eu', S0=50, ttm=1, K=50)
o = OptPx(o, r=0.05, q=0.5, vol=0.25, NSteps=5)
ChooserLT(o, t1 = .75, t2 = .75, IncBT=FALSE)$PxLT

Example output

[1] 21.031
[1] 76.46568
[1] 76.46568
[1] 18.27972
[1] 18.27972

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