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

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

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.