Supershare: Price of a Supershare Option

In Lcolzani98/OptionPricingFunctions: Option Pricing Functions

Price of a Supershare Option

Description

The function computes the price of an Supershare Option

Usage

Supershare(s, K_l, K_h, r, b, v, t)

Arguments

s	price of the underlying
K_l	lower strike limit
K_h	high strike limit
r	risK free rate
b	cost of carrying rate
v	volatility
t	time to maturity

Details

Supershare option is a type of binary, where in a common binary option the payout would be a set dollar amount should the underlying be greater than (or less than) the strike. In a Supershare option, there is a lower and upper boundary. If the underlying at expiry is between these boundaries the payoff is: Payoff = Underlying / LowerBoundary If the underlying is outside these boundaries the payoff is zero A supershare option, originally introduced by Hakansson (1976)

Value

Price of a Supershare Option given the underlying price s, the lower strike limit K_l, the high stirke limit K_h, the risk free rate r, the volatility v, the time to maturity of the option t

Author(s)

Colzani Luca, Magni Marta, Mancassola Gaia, Kakkanattu Jenson

References

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

Examples

 Supershare(100,90,110,0.1,0,0.2,0.25)


## The function is currently defined as
function (s, K_l, K_h, r, b, v, t) 
{
    d1 <- (log(s/K_l) + (b + v^(2)/2) * t)/(v * sqrt(t))
    d2 <- (log(s/K_h) + (b + v^(2)/2) * t)/(v * sqrt(t))
    price <- (s * (exp((b - r) * t))/K_l) * (pnorm(d1) - pnorm(d2))
    return(round(price, 2))
  }

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