EuropeanOption {RQuantLib}R Documentation

European Option evaluation using Closed-Form solution

Description

The EuropeanOption function evaluations an European-style option on a common stock using the Black-Scholes-Merton solution. The option value, the common first derivatives ("Greeks") as well as the calling parameters are returned.

Usage

EuropeanOption.default(type, underlying, strike, dividendYield, riskFreeRate, maturity, volatility)

## S3 method for class 'Option':
plot
## 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

Details

The well-known closed-form solution derived by Black, Scholes and Merton is used for valuation. Implied volatilities are calculated numerically.

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

Value

The EuropeanOption function returns an object of class EuropeanOption (which inherits from class Option). It contains a list with the following components can be returned:

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
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

EuropeanOptionImpliedVolatility, EuropeanOptionArrays, AmericanOption,BinaryOption

Examples

# simple call with unnamed parameters
EuropeanOption("call", 100, 100, 0.01, 0.03, 0.5, 0.4)
# simple call with some explicit parameters
EuropeanOption("call",100, 100, 0.01, 0.03, 0.5, 0.4)

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