QFRM (version 1.0.1)

ChooserBS: Chooser option valuation via Black-Scholes (BS) model

Description

Compute an exotic option that allow the holder decide the option will be a call or put option at some predetermined future date. In a simple case, both put and call option are plain vanilla option. The value of the simple chooser option is $\max{C(S,K,t_1),P(S,K,t_2)}$. The plain vanilla option is calculated based on the BS model.

Usage

ChooserBS(o = OptPx(Opt(Style = "Chooser")), t1 = 9/12, t2 = 3/12)

Arguments

o

An object of class OptPx

t1

The time to maturity of the call option, measured in years.

t2

The time to maturity of the put option, measured in years.

Value

A list of class SimpleChooserBS consisting of the original OptPx object and the option pricing parameters t1, t2, as well as the computed price PxBS.

References

• Hull, John 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
• Huang Espen G., Option Pricing Formulas, 2ed. http://down.cenet.org.cn/upfile/10/20083212958160.pdf
• Wee, Lim Tiong, MFE5010 Exotic Options,Notes for Lecture 4 Chooser option. http://www.stat.nus.edu.sg/~stalimtw/MFE5010/PDF/L4chooser.pdf
• Humphreys, Natalia A., ACTS 4302 Principles of Actuarial Models: Financial Economics. Lesson 14: All-or-nothing, Gap, Exchange and Chooser Options.

Examples

(o = ChooserBS())$PxBS

o = Opt(Style='Chooser',Right='Other',S0=50, K=50)
(o = ChooserBS(OptPx(o, r=0.06, q=0.02, vol=0.2),9/12, 3/12))$PxBS

o = Opt(Style='Chooser',Right='Other',S0=50, K=50)
(o = ChooserBS (OptPx(o,r=0.08, q=0, vol=0.25),1/2, 1/4))$PxBS

o = Opt(Style='Chooser',Right='Other',S0=100, K=50)
(o = ChooserBS(OptPx(o,r=0.08, q=0.05, vol=0.3),1/2, 1/4))$PxBS