am_call_bin_currency {AmericanCallOpt}

R Documentation

Binomial pricing of an American call on currency futures

Description

Pricing of currency futures American option using a binomial approximation

Usage

am_call_bin_currency(S, K, r, r_f, sigma, t, steps)

Arguments

S	spot price
K	exercice price
r	domestic interest rate
r_f	foreign interest rate
sigma	volatility
t	time to maturity
steps	number of steps in binomial tree

Details

American options written on foreign currencies are priced using a standard binomial tree. The notable point is that early exercise is driven by the difference between national interest rates.

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<-50 
K<-52
r<-0.08 
r_f<-0.05
sigma<-0.2 
t<-0.5
steps<-100

call_price_bin_currency<-am_call_bin_currency(S, K, r, r_f, sigma, t, steps)

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