ReverseOutperformanceCertificate: Reverse Outperformance Certificatevaluation using pricing by...

In fCertificates: Basics of Certificates and Structured Products Valuation

Description

values a Reverse Outperformance Certificate using pricing by duplication

Usage

ReverseOutperformanceCertificate(S, S0, X, Time, r, r_d, sigma, 
  participation, ratio = 1)

Arguments

S	the asset price, a numeric value.
S0	the underlying start price at issue date
X	the exercise price, a numeric value.
Time	time to maturity measured in years
r	the annualized rate of interest, a numeric value; e.g. 0.25 means 25% pa.
r_d	the annualized dividend yield, a numeric value; e.g. 0.25 means 25% pa.
sigma	the annualized volatility of the underlying security, a numeric value; e.g. 0.3 means 30% volatility pa.
participation	participation rate/factor below strike level. Defaults to 1.
ratio	ratio, number of underlyings one certificate refers to, a numeric value; e.g. 0.25 means 4 certificates refer to 1 share of the underlying asset

Details

A Reverse Outperformance Certificate is composed of

1. a short position in stock with reference price S0 (i.e. a Put with strike S0)

2. a number of long puts ("participation") with strike price X

Value

the price (scalar or vector) of the Reverse Outperformance Certificate

Author(s)

Stefan Wilhelm [e-mail]

See Also

similar structures: OutperformanceCertificate

Examples

## 
ReverseOutperformanceCertificate(S=105, S0=100, X=90, Time=1, 
  r=0.045, r_d=0, sigma=0.4, participation=1.2, ratio=1)

## payoff diagram
S <- seq(0, 150)
p <- ReverseOutperformanceCertificate(S, S0=100, X=90, Time=1, 
  r=0.045, r_d=0, sigma=0.4, participation=1.2, ratio=1)
p2 <- ReverseOutperformanceCertificate(S, S0=100, X=90, Time=0, 
  r=0.045, r_d=0, sigma=0.4, participation=1.2, ratio=1)  
plot(S, p,  type="l", col="red", ylim=range(p, p2, na.rm=TRUE), 
  xlab="underlying price", ylab="payoff", main="Reverse Outperformance")
lines(S, p2, col="blue")    
abline(v=90, lty=2, col="gray80")   

Example output

Loading required package: fBasics
Loading required package: timeDate
Loading required package: timeSeries
Loading required package: fOptions
Loading required package: fExoticOptions
[1] 89.33641

fCertificates documentation built on May 1, 2019, 10:09 p.m.