check_merton_convergence: Compare prices for European vanilla options produced by the...

In shill1729/OptionPricer: An option pricer for European and American vanilla stock options

Description

Check for mutual convergence of prices generated by both PDE and MC methods to a common value under Black-Scholes dynamics for European vanilla options.

Usage

check_merton_convergence(
  spot,
  maturity,
  parameters,
  what,
  N = 100,
  M = 100,
  threshold = 0.001,
  samples = 1000,
  strike_range = 5
)

Arguments

spot	the underlying spot price
maturity	the maturity of the option in trading years
parameters	vector of parameters defining the Merton jump diffusion dynamics, see details
what	what type of option
N	time resolution
M	space resolution
threshold	threshold for MSE error for acceptance of convergence
samples	number of samples to use in MC
strike_range	range of strikes to price

Details

The argument parameters should be a vector containing the values (not necessarily named)

• rate the risk-free rate,

• div the dividend yield rate,

• volat the annual log volatility,

• lambda the mean rate of jumps per year,

• jm the mean size of jumps,

• jv the mean volatility of jumps

Value

list containing a data.frame of the strike and genertaed prices, the mse, boolean for success and success message if successful.

shill1729/OptionPricer documentation built on June 11, 2020, 12:18 a.m.