Estimates VaR of American vanilla put using binomial tree.

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Description

Estimates VaR of American Put Option using binomial tree to price the option and historical method to compute the VaR.

Usage

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AmericanPutVaRBinomial(amountInvested, stockPrice, strike, r, volatility,
  maturity, numberSteps, cl, hp)

Arguments

amountInvested

Total amount paid for the Put Option.

stockPrice

Stock price of underlying stock.

strike

Strike price of the option.

r

Risk-free rate.

volatility

Volatility of the underlying stock.

maturity

Time to maturity of the option in days.

numberSteps

The number of time-steps considered for the binomial model.

cl

Confidence level for which VaR is computed.

hp

Holding period of the option in days.

Value

VaR of the American Put Option

Author(s)

Dinesh Acharya

References

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

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

Examples

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

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