BinaryOption {RQuantLib}R Documentation

Binary Option evaluation using Closed-Form solution

Description

This function evaluations an Binary option on a common stock using a closed-form solution. The option value as well as the common first derivatives ("Greeks") are returned.

Usage

BinaryOption.default(type, underlying, strike, dividendYield, riskFreeRate,
maturity, volatility, cashPayoff=1.0)

## S3 method for class 'Option':
print
## S3 method for class 'Option':
summary

Arguments

type A string with one of the values call, put or straddle
underlying Current price of the underlying stock
strike Strike price of the option
dividendYield Continuous dividend yield (as a fraction) of the stock
riskFreeRate Risk-free rate
maturity Time to maturity (in fractional years)
volatility Volatility of the underlying stock
cashPayoff Payout amount, defaults to 1.0

Details

A closed-form solution is used to value the Binary Option.

Please see any decent Finance textbook for background reading, and the QuantLib documentation for details on the QuantLib implementation.

Value

An object of class BinaryOption (which inherits from class Option) is returned. It contains a list with the following components:

value Value of option
delta Change in value for a change in the underlying
gamma Change in value for a change in delta
vega Change in value for a change in the underlying's volatility
theta Change in value for a change in delta
rho Change in value for a change in time to maturity ("time decay")
dividendRho Change in value for a change in delta
parameters List with parameters with which object was created

Note

The interface might change in future release as QuantLib stabilises its own API.

Author(s)

Dirk Eddelbuettel edd@debian.org for the R interface; the QuantLib Group for QuantLib

References

http://quantlib.org for details on QuantLib.

See Also

AmericanOption,EuropeanOption

Examples

BinaryOption("call", 100, 100, 0.02, 0.03, 0.5, 0.4, 10)

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