Description Usage Arguments Details Value Author(s) References Examples

`extract.rates`

extracts the risk free rate and the dividend yield from European options.

1 | ```
extract.rates(calls, puts, s0, k, te)
``` |

`calls` |
market calls (most expensive to cheapest) |

`puts` |
market puts (cheapest to most expensive) |

`s0` |
current asset value |

`k` |
strikes for the calls (smallest to largest) |

`te` |
time to expiration |

The extraction is based on the put-call parity of the European options. Shimko (1993) - see below - shows that the slope and intercept of the regression of the calls minus puts onto the strikes contains the risk free and the dividend rates.

`risk.free.rate ` |
extracted risk free rate |

`dividend.yield ` |
extracted dividend rate |

Kam Hamidieh

D. Shimko (1993)
Bounds of probability.
*Risk*, 6, 33-47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 | ```
#
# Create calls and puts based on BSM
#
r = 0.05
te = 60/365
s0 = 1000
k = seq(from = 900, to = 1100, by = 25)
sigma = 0.25
y = 0.01
bsm.obj = price.bsm.option(r =r, te = te, s0 = s0, k = k, sigma = sigma, y = y)
calls = bsm.obj$call
puts = bsm.obj$put
#
# Extract rates should give the values of r and y above:
#
rates = extract.rates(calls = calls, puts = puts, k = k, s0 = s0, te = te)
rates
``` |

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