am_call_bin_contpay {AmericanCallOpt} | R Documentation |
Pricing of an American call option with continuous payout from the underlying asset using a binomial approximation
am_call_bin_contpay(S, K, r, y, sigma, t, steps)
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 |
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.
call_price |
Option price |
Paolo Zagaglia, paolo.zagaglia@gmail.com
John Hull, "Options, Futures and other Derivative Securities", Prentice-Hall, second edition, 1993.
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)