TwinWinCertificate: Twin Win Certificate valuation using pricing by duplication

In fCertificates: Basics of Certificates and Structured Products Valuation

Description

This function values a Twin Win Certificate using pricing by duplication and the Generalized Black/Scholes formula.

Usage

TwinWinCertificate(S, X, B, Time, r, r_d, sigma, 
  participation = 1, ratio = 1)

Arguments

S	the asset price, a numeric value.
X	the exercise price ("Bonuslevel"), a numeric value.
B	the barrier ("Sicherheitslevel"), 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 between bonus level and 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 Twin Win Certificate is a combination of

1. a long position in the stock (aka Zero-Strike Call)

2. 2 long down-and-out-puts with strike price X and barrier B (StandardBarrierOption)

The structure is similar to a Bonus Certificate, the only difference is a double participation at maturity in the range between B and X, implying a "Twin Win" situation for slightly falling underlying prices.

Classification according to the SVSP Swiss Derivative Map 2008: Twin-Win Certificates (250)
Classification according to the SVSP Swiss Derivative Map 2010: Twin-Win Certificates (1340)

Value

the price (scalar or vector) of the Twin Win Certificate

Author(s)

Stefan Wilhelm [e-mail]

References

SVSP Swiss Derivative Map http://www.svsp-verband.ch/map/

See Also

BonusCertificate for a similar structure

Examples

##
TwinWinCertificate(S=100, X=100, B=80, Time=2, r = 0.03, r_d = 0, 
  sigma=0.15, participation=1.2, ratio = 1)
 
## payoff diagram
S <- seq(50, 150, by=0.1)
p <- TwinWinCertificate(S, X=100, B=80, Time=0.2, r = 0.03, r_d = 0, 
  sigma=0.15, participation=1.2, ratio = 1)
p2 <- TwinWinCertificate(S, X=100, B=80, Time=0, r = 0.03, r_d = 0, 
  sigma=0.15, 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="Twin-Win")
lines(S, p2, col="blue")    
abline(v=c(80, 100), lty=2, col="gray80")  

Example output

Loading required package: fBasics
Loading required package: timeDate
Loading required package: timeSeries


Rmetrics Package fBasics
Analysing Markets and calculating Basic Statistics
Copyright (C) 2005-2014 Rmetrics Association Zurich
Educational Software for Financial Engineering and Computational Science
Rmetrics is free software and comes with ABSOLUTELY NO WARRANTY.
https://www.rmetrics.org --- Mail to: [e-mail]
Loading required package: fOptions


Rmetrics Package fOptions
Pricing and Evaluating Basic Options
Copyright (C) 2005-2014 Rmetrics Association Zurich
Educational Software for Financial Engineering and Computational Science
Rmetrics is free software and comes with ABSOLUTELY NO WARRANTY.
https://www.rmetrics.org --- Mail to: [e-mail]
Loading required package: fExoticOptions
[1] 105.1451

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