ecld.op_V: The O, V, U operators in option pricing model

ecld.op_VR Documentation

The O, V, U operators in option pricing model

Description

The O operator takes a vector of implied volatility σ_1(k) and transforms them to a vector of normalized option prices. The V operator takes a vector of normalized option prices and transforms them to a vector of implied volatility σ_1(k). If ttm is provided, σ_1(k) will be divided by square root of 2 ttm and yield Black-Scholes implied volatility. The U operator calculates the log-slope of the option prices. The op_VL_quartic operator is the quartic composite of V x OGF, assuming epsilon and rho are deposited in the ecld object. The RN parameter for OGF is not available here. It is always assumed to be FALSE.

Usage

ecld.op_V(
  L,
  k,
  otype = "c",
  ttm = NaN,
  rho = 0,
  stop.on.na = FALSE,
  use.mc = TRUE
)

ecld.op_O(sigma1, k, otype = "c", rho = 0)

ecld.op_U_lag(L, k, sd, n = 2)

ecld.op_VL_quartic(
  object,
  k,
  otype = "c",
  ttm = NaN,
  stop.on.na = FALSE,
  use.mc = TRUE
)

Arguments

L

numeric, a vector of normalized local option prices

k

numeric, a vector of log-strike

otype

character, specifying option type: c (default) or p.

ttm

numeric, time to expiration (maturity), measured by fraction of year. If specified, V operator will adjust σ_1(k) to Black-Scholes implied volatility. Default is NaN.

rho

numeric, specify the shift in the global mu.

stop.on.na

logical, to stop if fails to find solution. Default is to use NaN and not stop.

use.mc

logical, to use mclapply, or else just use for loop. Default is TRUE. For loop option is typically for debugging.

sigma1

numeric, a vector of implied volatility (without T)

sd

numeric, the stdev of the distribution. Instead, if an ecld or ecd object is provided, the stdev will be calculated from it.

n

numeric, number of lags in ecld.op_U_lag.

object

an object of ecld class created from ecld.quartic. This object contains the full quartic lambda model spec in order to be used in ecld.op_VL_quartic

Value

a numeric vector

Author(s)

Stephen H. Lihn


ecd documentation built on May 10, 2022, 1:07 a.m.