CRROption: Cox-Ross-Rubinstein Option Pricing Model

In risktoollib/RTL: Risk Tool Library - Trading, Risk, 'Analytics' for Commodities

Cox-Ross-Rubinstein Option Pricing Model

Description

Computes the price of European and American options using the Cox-Ross-Rubinstein binomial model. This function is optimized for performance and implemented in C++. Haug (2007) provides a detailed description of the model.

Usage

CRROption(S, X, sigma, r, b, T2M, N, type, optionStyle)

Arguments

S	Numeric, the current stock price (also known as the underlying asset price).
X	Numeric, the strike price of the option.
sigma	Numeric, the implied volatility of the underlying stock (annualized).
r	Numeric, the risk-free interest rate (annualized).
b	Numeric, the cost of carry, b = r - q for dividend paying assets, where q is the dividend yield rate.
T2M	Numeric, the time to maturity of the option (in years).
N	Integer, the number of time steps in the binomial tree.
type	Character, the type of option ("call" or "put").
optionStyle	Character, the style of the option ("european" or "american").

Value

A list containing the computed price of the option and a note indicating if the model is suitable for the provided parameters.

Examples

# CRROption(S = 100, X = 100, sigma = 0.25, r = 0.1, b = 0, T2M = 1, N = 500,
# type = "call", optionStyle = "european")
# CRROption(S = 100, X = 100, sigma = 0.25, r = 0.1, b = 0, T2M = 1, N = 500,
# type = "call", optionStyle = "american")

risktoollib/RTL documentation built on April 17, 2024, 1:35 p.m.