ForeignEquityBS: ForeignEquity option valuation via Black-Scholes (BS) model In QFRM: Pricing of Vanilla and Exotic Option Contracts

Description

ForeignEquity Option via Black-Scholes (BS) model

Usage

 ```1 2 3``` ```ForeignEquityBS(o = OptPx(Opt(Style = "ForeignEquity")), I1 = 1540, I2 = 1/90, sigma1 = 0.14, sigma2 = 0.18, g1 = 0.02, rho = -0.3, Type = c("Foreign", "Domestic")) ```

Arguments

 `o` An object of class `OptPx` `I1` A spot price of the underlying security 1 (usually I1) `I2` A spot price of the underlying security 2 (usually I2) `sigma1` a vector of implied volatilities for the associated security 1 `sigma2` a vector of implied volatilities for the associated security 2 `g1` is the payout rate of the first stock `rho` is the correlation between asset 1 and asset 2 `Type` ForeignEquity option type: 'Foreign' or 'Domestic'

Details

Two types of ForeignEquity options are priced: `'Foreign'` and `'Domestic'`. See "Exotic Options", 2nd, Peter G. Zhang for more details.

Value

A list of class `ForeignEquityBS` consisting of the original `OptPx` object and the option pricing parameters `I1`,`I2`, `Type`, `isForeign`, and `isDomestic` as well as the computed price `PxBS`.

Author(s)

Chengwei Ge, Department of Statistics, Rice University, 2015

References

Zhang, Peter G. Exotic Options, 2nd, 1998.

Examples

 ``` 1 2 3 4 5 6 7 8 9 10 11 12 13 14``` ```o = OptPx(Opt(Style = 'ForeignEquity', Right = "Put"), r= 0.03) ForeignEquityBS(o, I1=1540, I2=1/90, g1=.02, sigma1=.14,sigma2=0.18, rho=.03,Type='Foreign') o = OptPx(Opt(Style = 'ForeignEquity', Right = "Put", ttm=9/12, K=1600), r=.03) ForeignEquityBS(o, I1=1540, I2=1/90, g1=.02, sigma1=.14,sigma2=0.18, rho=0.03,Type='Foreign') o = OptPx(Opt(Style = 'ForeignEquity', Right = "C", ttm=9/12, K=1600), r=.03) ForeignEquityBS(o, I1=1540, I2=1/90, g1=.02, sigma1=.14,sigma2=0.18, rho=0.03,Type='Foreign') o = OptPx(Opt(Style = 'ForeignEquity', Right = "C", ttm=9/12, K=1600), r=.03) ForeignEquityBS(o, I1=1540, I2=1/90, g1=.02, sigma1=.14,sigma2=0.18, rho=0.03,Type='Domestic') o = OptPx(Opt(Style = 'ForeignEquity', Right = "P", ttm=9/12, K=1600), r=.03) ForeignEquityBS(o, I1=1540, I2=1/90, g1=.02, sigma1=.14,sigma2=0.18, rho=0.03,Type='Domestic') ```

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