am_call_bin_contpay {AmericanCallOpt}

R Documentation

Binomial option price with continuous payout from the underlying asset

Description

Pricing of an American call option with continuous payout from the underlying asset using a binomial approximation

Usage

am_call_bin_contpay(S, K, r, y, sigma, t, steps)

Arguments

S	spot price
K	exercise price
r	risk-free interest rate
y	continuous payout
sigma	volatility
t	time to maturity
steps	number of steps in binomial tree

Details

With this type of option, the underlying asset provides payouts at each period in time. The payoff structure simplifies the computation to a major extent and makes this a case similar to the one of pricing through Black-Scholes.

Value

call_price

Option price

Author(s)

Paolo Zagaglia, paolo.zagaglia@gmail.com

References

John Hull, "Options, Futures and other Derivative Securities", Prentice-Hall, second edition, 1993.

Examples

rm(list=ls()) 

S<-100 
K<-100
r<-0.10 
y<-0.02
sigma<-0.25
t<-1
steps<-100

call_price_bin_contpay<-am_call_bin_contpay(S, K, r, y, sigma, t, steps)

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