blackScholes: Black-Scholes Formula (European Option)

In m4fe: Models for Financial Economics

Description

The famous Black-Scholes Option Pricing Formula based on the Lognormal Models. This formula can be extended to barrier options, currency options, options on futures, etc.

Usage

blackScholes(S, K, r, T, sigma)

Arguments

S	The Stock Price
K	The Strike Price
r	The risk-free continuously compounded interest rate
T	The expiration date
sigma	The volatility

Details

The Black-Scholes Formula is based on the assumption of geometric brownian motion and can be shown to satisfy the Black-Scholes Partial Differential Equation. It can be thought of as the combination of an asset-or-nothing option and a cash-or-nothing option

Examples

blackScholes(S=41,K=40,r=0.08,T=1,sigma=0.3)

m4fe documentation built on May 29, 2017, 9:40 p.m.