hestonSLVOptionPricer: Vanilla Option Pricer for the Heston SLV Model

In klausspanderen/RHestonSLV: R Implementation of the Heston Stochastic Local Volatility Model

Description

The hestonSLVOptionPricer function evaluates a vanilla option with European or American exercise under the Heston Stochastic Volatility model using Finite Difference methods. The option value and the common first derivatives ("Greeks") are returned.

Usage

  hestonSLVOptionPricer(referenceDate, strike, optionType, exerciseType,
                        maturityDate, hestonProcess, leverageFunction, tGrid=51, xGrid=401,
                        vGrid=51, dampingSteps=0, fdmScheme = "ModifiedCraigSneyd")

Arguments

referenceDate	a date setting the reference date for the calculation
strike	the strike price of the option
optionType	a string with one of the values “call” or “put”
exerciseType	a string with one of the values “european” or “american”
maturityDate	the maturity date
hestonProcess	the Heston model part of the HestonSLV specification
leverageFunction	the leverage function of the HestonSLV model
tGrid	number of time steps for the Finite Difference scheme
xGrid	number of grid points in spot direction
vGrid	number of grid points in variance direction
dampingSteps	number of damping steps to avoid spurious oscillations
fdmScheme	the Finite Difference scheme, a string with one of the values “Hundsdorfer”, “ModifiedHundsdorfer”, “Douglas”, “CraigSneyd”, “ModifiedCraigSneyd”, “ImplicitEuler” or “ExplicitEuler”

Value

The hestonSLVOptionPricer function returns a list with the following components:

value	npv of option
delta	change in option value for a change in the underlying
gamma	change in option delta for a change in the underlying
theta	change in option value for a change in t
impliedVol	implied Black-Scholes-Merton volatility of the option

Examples

process <- HestonProcess(function(t,s) {0.05}, function(t,s) {0.02},
                         100, 0.09, 1.0, 0.06, 0.4, -0.75)

leverageFct <- function(t, s) { exp(-t)*(s+70)/100.0 }

s <- seq(50, 200, 10)
plot(s, sapply(s, function(strike) {
  hestonSLVOptionPricer(Sys.Date(), strike, "call", "european",
                        Sys.Date()+182, process, leverageFct)$impliedVol
                }), type="b",lty=2, ylab="Implied Volatility",xlab="Strike"
)

klausspanderen/RHestonSLV documentation built on Oct. 4, 2021, 11:10 a.m.