am_call_bin_currency {AmericanCallOpt} | R Documentation |
Pricing of currency futures American option using a binomial approximation
am_call_bin_currency(S, K, r, r_f, sigma, t, steps)
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 |
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.
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<-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)