[R-SIG-Finance] Spread Approx Option question
martin.becker at mx.uni-saarland.de
Fri Jun 11 15:07:26 CEST 2010
I guess that there is a mistake in fExoticOptions' SpreadApproxOption()
- function; discounting seems to be done twice (SpreadApproxOption()
calls GBSOption(), which already has discounting, but inserts an
additional factor exp(-r*t)).
At least, 0.9048*exp(0.05) gives the result you had expected.
Best - Martin
On 10.06.2010 23:12, Ben Cooper wrote:
> I'm asking a question for a friend who couldn't post for to the site today.
> He was trying to use the function Spread Approx Option from the
> package fExoticOptions. The example he showed me was,
> SpreadApproxOption(TypeFlag = "c", S1 = 28, S2 = 20, X = 7, Time = 1,
> r = .05, sigma1 = 0, sigma2 = 0, rho = 1)
> This is returning an option price of 0.9048. Shouldn't the option
> price be the simple PV of 1 at the .05 rate? What is the math that
> causes the difference here?
> We've also run this same example through the Haug excel model that
> comes with his book, and am getting a value of .9512. This is more in
> line with what I'd expect.
> R-SIG-Finance at stat.math.ethz.ch mailing list
> -- Subscriber-posting only. If you want to post, subscribe first.
> -- Also note that this is not the r-help list where general R questions should go.
Dr. Martin Becker
Statistics and Econometrics
Campus C3 1, Room 217
More information about the R-SIG-Finance