greeks: Calculate option Greeks

In derivmkts: Functions and R Code to Accompany Derivatives Markets

Calculate option Greeks

Description

The functions greeks and greeks2 provide two different calling conventions for computing a full set of option Greeks. greeks simply requires entering a pricing function with parameters. greeks2 requires the use of named parameter entries. The function bsopt calls greeks2 to produce a full set of prices and greeks for calls and puts. These functions are all vectorized, the only restriction being that the functions will produce an error if the recycling rule can not be used safely (that is, if parameter vector lengths are not integer multiples of one another).

Usage

greeks(f, complete=FALSE, long=FALSE, initcaps=TRUE)
# must used named list entries:
greeks2(fn, ...)
bsopt(s, k, v, r, tt, d)

Arguments

s	Price of underlying asset
k	Option strike price
v	Volatility of the underlying asset, defined as the annualized standard deviation of the continuously-compounded return
r	Annual continuously-compounded risk-free interest rate
tt	Time to maturity in years
d	Dividend yield of the underlying asset, annualized, continuously-compounded
fn	Pricing function name, not in quotes
f	Fully-specified option pricing function, including inputs which need not be named. For example, you can enter greeks(bscall(40, 40, .3, .08, .25, 0))
complete	FALSE. If TRUE, return a data frame with columns equal to input parameters, function name, premium, and greeks (each greek is a column). This is experimental and the output may change. Convert to long format using long=TRUE.
long	FALSE. Setting long=TRUE returns a long data frame, where each row contains input parameters, function name, and either the premium or one of the greeks. long=TRUE implies complete=TRUE
initcaps	TRUE. If true, capitalize names (e.g. "Delta" vs "delta")
...	Pricing function inputs, must be named, may either be a list or not

Details

Numerical derivatives are calculated using a simple difference. This can create numerical problems in edge cases. It might be good to use the package numDeriv or some other more sophisticated calculation, but the current approach works well with vectorization.

Value

A named list of Black-Scholes option prices and Greeks, or optionally ('complete=TRUE') a dataframe.

Note

The pricing function being passed to the greeks function must return a numeric vector. For example, callperpetual must be called with the option showbarrier=FALSE (the default). The pricing function call cannot contain a variable named 'z91k25'.

Examples

s=40; k=40; v=0.30; r=0.08; tt=0.25; d=0;
greeks(bscall(s, k, v, r, tt, d), complete=FALSE, long=FALSE, initcaps=TRUE)
greeks2(bscall, list(s=s, k=k, v=v, r=r, tt=tt, d=d))
greeks2(bscall, list(s=s, k=k, v=v, r=r, tt=tt, d=d))[c('Delta', 'Gamma'), ]
bsopt(s, k, v, r, tt, d)
bsopt(s, c(35, 40, 45), v, r, tt, d)
bsopt(s, c(35, 40, 45), v, r, tt, d)[['Call']][c('Delta', 'Gamma'), ]

## plot Greeks for calls and puts for 500 different stock prices
##
## This plot can generate a "figure margins too large" error
## in Rstudio
k <- 100; v <- 0.30; r <- 0.08; tt <- 2; d <- 0
S <- seq(.5, 250, by=.5)
Call <- greeks(bscall(S, k, v, r, tt, d))
Put <- greeks(bsput(S, k, v, r, tt, d))
y <- list(Call=Call, Put=Put)
par(mfrow=c(4, 4), mar=c(2, 2, 2, 2))  ## create a 4x4 plot
for (i in names(y)) {
    for (j in rownames(y[[i]])) {  ## loop over greeks
        plot(S, y[[i]][j, ], main=paste(i, j), ylab=j, type='l')
    }
}
## Not run: 
## Using complete option for calls
call_long <- greeks(bscall(S, k, v, r, tt, d), long=TRUE)
ggplot2::ggplot(call_long, aes(x=s, y=value)) +
      geom_line() + facet_wrap(~greek, scales='free')

## End(Not run)

derivmkts documentation built on April 11, 2022, 5:10 p.m.