ChooserLT {QFRM} | R Documentation |
Chooser option valuation via Lattice Tree (LT) Model
Description
Calculates the price of a Chooser option using a recombining binomial tree model. Has pricing capabilities for both simple European Chooser options as well as American Chooser Options, where exercise can occur any time as a call or put options.
Usage
ChooserLT(o = OptPx(Opt("Chooser", ttm = 1)), t1 = 0.5, t2 = 0.5,
IncBT = FALSE)
Arguments
o |
The |
t1 |
The time to maturity of the call option, measured in years. |
t2 |
The time to maturity of the put option, measured in years. |
IncBT |
|
Details
The American chooser option is interpreted as exercise of option being available at any point in time during the life of the option.
Value
An original OptPx
object with PxLT
field as the price of the option and user-supplied ttc
,
IncBT
parameters attached.
Author(s)
Richard Huang, Department of Statistics, Rice University, spring 2015
References
Hull, J.C., Options, Futures and Other Derivatives, 9ed, 2014. Prentice Hall.
ISBN 978-0-13-345631-8, http://www-2.rotman.utoronto.ca/~hull/ofod/index.html
Thomas S.Y. Ho et al., The Oxford Guide to Financial Modeling : Applications for Capital Markets. . .
Examples
(o = ChooserLT())$PxLT #Default Chooser option price. (See Ho pg 234 in references)
o = Opt('Eu', S0=100, ttm=1, K=100)
o = OptPx(o, r=0.10, q=0, vol=0.1, NSteps=5)
(o = ChooserLT(o, t1 = .5, t2 =.5, IncBT=TRUE))$PxLT
#American Chooser, higher price than European equivalent
o = Opt('Am', S0=100, ttm=1, K=100)
o = OptPx(o, r=0.10, q=0, vol=0.1, NSteps=5)
ChooserLT(o,t1=.5, t2=.5,IncBT=FALSE)$PxLT
o = Opt('Eu', S0=50, ttm=1, K=50)
o = OptPx(o, r=0.05, q=0.02, vol=0.25, NSteps=5)
ChooserLT(o, t1 = .75, t2 = .75, IncBT=FALSE)$PxLT
o = Opt('Eu', S0=50, ttm=1, K=50)
o = OptPx(o, r=0.05, q=0.5, vol=0.25, NSteps=5)
ChooserLT(o, t1 = .75, t2 = .75, IncBT=FALSE)$PxLT