# [R] Simple plot of IR and option prices

James jctoll at gmail.com
Tue Oct 16 18:32:53 CEST 2007

```Hi,

I'm trying to construct what I think should be a fairly simple plot,
yet I'm having a tremendously difficult time.  I'm trying to create a
very simple graph showing the effect of interest rates on option
prices.  I have three sets of option prices that I've calculated
using rMetrics.  Each set contains a call price and a put price at a
particular interest rate. Each set uses a different interest rate(0%,
5%,10%).  The idea is to have "call" and "put" on the X axis, the
option prices on Y, and to have three lines drawn from the call price
to the put price to show how the option price varies relative to
interest rates.  Kind of a see-saw like graph.  I need to keep this
simple because this is meant to teach the absolute basics about the
effects of interest rates on option prices.

These are the option prices I'm using:
CallPrice1<-CRRBinomialTreeOption(TypeFlag="ca",S=20, X=20,
Time=1/12, r=0.0, b=0.0, sigma=.4, n=100)@price
CallPrice2<-CRRBinomialTreeOption(TypeFlag="ca",S=20, X=20,
Time=1/12, r=.05, b=.05, sigma=.4, n=100)@price
CallPrice3<-CRRBinomialTreeOption(TypeFlag="ca",S=20, X=20,
Time=1/12, r=.10, b=.10, sigma=.4, n=100)@price

PutPrice1<-CRRBinomialTreeOption(TypeFlag="pa",S=20, X=20, Time=1/12,
r=0.0, b=0.0, sigma=.4, n=100)@price
PutPrice2<-CRRBinomialTreeOption(TypeFlag="pa",S=20, X=20, Time=1/12,
r=.05, b=.05, sigma=.4, n=100)@price
PutPrice3<-CRRBinomialTreeOption(TypeFlag="pa",S=20, X=20, Time=1/12,
r=.10, b=.10, sigma=.4, n=100)@price

L1<-c(CallPrice1, PutPrice1)
L2<-c(CallPrice2, PutPrice2)
L3<-c(CallPrice3, PutPrice3)

Everything I've tried as basically failed.  So far I've only been
able to plot one of the lines.  And this is as far as I've gotten in
trying to plot this:
plot(1:2, L1, type="b", main="Option Prices", xlab="Calls    and
Puts", ylab="Option Price", lwd=3, col="dark red")

But obviously this makes the X axis 1:2 rather than "Calls" and
"Puts", also, I've been completely unsuccessful in adding the L2 and
L3 lines.

Any help and suggestions would be greatly appreciated.  Thanks.

James

```