BCC {BCC1997} R Documentation

## Calculation of Option Prices Based on a Universal Solution

### Description

This is a function to calculate the prices of European options based on the universal solution provided by Bakshi, Cao and Chen (1997) <doi:10.1111/j.1540-6261.1997.tb02749.x>. This solution takes stochastic volatility, stochastic interest and random jumps into consideration. Please cite their work if this package is used.

### Usage

BCC(kappav, kappar, thetav, thetar, sigmav, sigmar, muj, sigmaj, rho, lambda,
S0, K, V0, R0, t)


### Arguments

 kappav Speed of convergence on variance kappar Speed of convergence on risk free rate thetav Long-term variance thetar Long-term risk free rate sigmav Volatility of variance sigmar Volatility of risk free rate muj Jump size sigmaj Volatility of jumps rho Correlation between underlying price and variance lambda Jump intensity S0 Initial/Current underlying price K Strike price V0 Initial/Current variance R0 Initial/Current risk free rate t Time to maturity

### Value

Call: return the price of the European call oprion

Put: return the price of the European put oprion

### Note

Please notice each parameter has its "reasonable range". e.g. volatilities cannot be zero or smaller than zero, please input 0.0000001 when they are zero.

### Examples

BCC(kappav=0,kappar=0,thetav=0,thetar=0,sigmav=0.0000001,sigmar=0.0000001,muj=0,
sigmaj=0.0000001,rho=0,lambda=0,S0=100,K=100,V0=0.04,R0=0.01,t=1)
BCC(kappav=0.5,kappar=0,thetav=0.025,thetar=0,sigmav=0.09,sigmar=0.0000001,muj=0,
sigmaj=0.0000001,rho=0.1,lambda=0,S0=100,K=100,V0=0.04,R0=0.01,t=1)


[Package BCC1997 version 0.1.1 Index]