# AmericanPutESSim: Estimates ES of American vanilla put using binomial option... In Dowd: Functions Ported from 'MMR2' Toolbox Offered in Kevin Dowd's Book Measuring Market Risk

## Description

Estimates ES of American Put Option using binomial tree to price the option valuation tree and Monte Carlo simulation with a binomial option valuation tree nested within the MCS. Historical method to compute the VaR.

## Usage

 ```1 2``` ```AmericanPutESSim(amountInvested, stockPrice, strike, r, mu, sigma, maturity, numberTrials, numberSteps, cl, hp) ```

## Arguments

 `amountInvested` Total amount paid for the Put Option and is positive (negative) if the option position is long (short) `stockPrice` Stock price of underlying stock `strike` Strike price of the option `r` Risk-free rate `mu` Expected rate of return on the underlying asset and is in annualised term `sigma` Volatility of the underlying stock and is in annualised term `maturity` The term to maturity of the option in days `numberTrials` The number of interations in the Monte Carlo simulation exercise `numberSteps` The number of steps over the holding period at each of which early exercise is checked and is at least 2 `cl` Confidence level for which VaR is computed and is scalar `hp` Holding period of the option in days and is scalar

## Value

Monte Carlo Simulation VaR estimate and the bounds of the 95 confidence interval for the VaR, based on an order-statistics analysis of the P/L distribution

Dinesh Acharya

## References

Dowd, Kevin. Measuring Market Risk, Wiley, 2007.

Lyuu, Yuh-Dauh. Financial Engineering & Computation: Principles, Mathematics, Algorithms, Cambridge University Press, 2002.

## Examples

 ```1 2``` ```# Market Risk of American Put with given parameters. AmericanPutESSim(0.20, 27.2, 25, .16, .2, .05, 60, 30, 20, .95, 30) ```

Dowd documentation built on May 31, 2017, 4:46 a.m.