Chooser: Price of a Chooser Option

In Lcolzani98/OptionPricingFunctions: Option Pricing Functions

Price of a Chooser Option

Description

The function computes the price of a Chooser Option

Usage

Chooser(s, K, b, r, v, t, t1)

Arguments

s	price of the underlying
K	strike price
b	cost of carry rate
r	risK free rate
v	volatility
t	time to maturity
t1	time to choose between put or call

Details

A chooser option is an option contract that allows the holder to decide whether it is to be a call or put prior to the expiration date. Chooser options usually have the same strike price and expiration date regardless of what decision the holder makes.

Value

The price of a Chooser Option given the undelying price s, the strike price K, the cost of carrying rate b, the risk free rate r, the volatility v, the time to maturity of the option t and time to choose between put or call t1.

Author(s)

Colzani Luca, Magni Marta, Mancassola Gaia, Kakkanattu Jenson

References

Espen Gaarder Haug(2007):The Complete Guide to Option Pricing Formulas

Examples

 Chooser(50,50,0.08,0.08,0.25,0.5, 0.25)
## The function is currently defined as
function (s, K, b, r, v, t, t1) 
{
    d <- (log(s/K) + (b + v^(2)/2) * t)/(v * sqrt(t))
    y <- (log(s/K) + b * t + v^(2) * t1/2)/(v * sqrt(t1))
    price <- s * exp((b - r) * t) * pnorm(d) - K * exp(-r * t) * 
        pnorm(d - v * sqrt(t)) - s * exp((b - r) * t) * pnorm(-y) + 
        K * exp(-r * t) * pnorm(-y + v * sqrt(t1))
    return(round(price, 2))
  }

Lcolzani98/OptionPricingFunctions documentation built on June 13, 2022, 5:46 a.m.