[R-SIG-Finance] fOptions and RQuantlib give different vanilla option premiums

[Vladimir Vladimirov]

Enrico, Thomas, Dirk thank you for the help. I love the r-sig finance community.

On Wed, Mar 16, 2011 at 12:21 PM, Dirk Eddelbuettel <edd at debian.org> wrote:
>
> On 16 March 2011 at 10:16, Vladimir Vladimirov wrote:
> | library(fOptions)
> | library(RQuantLib)
> |
> | > EuropeanOption(type="call", underlying=1.56, strike=1.6, dividendYield=0.06-0.08, riskFreeRate=0.06, maturity=1/2, volatility=0.12)
> | Concise summary of valuation for EuropeanOption
> |   value   delta   gamma    vega   theta     rho  divRho
> |  0.0652  0.5912  2.9743  0.4343 -0.1220  0.4285 -0.4611
> |
> | > GBSCharacteristics(TypeFlag = "c", S = 1.5600, X = 1.6000,  Time = 1/2, r = 0.06, b = 0.06-0.08, sigma = 0.12)
> | $premium
> | [1] 0.02909931
> | $delta
> | [1] 0.3403860
> | $theta
> | [1] -0.03494785
> | $vega
> | [1] 0.3942821
> | $rho
> | [1] 0.2509514
> | $lambda
> | [1] 18.24793
> | $gamma
> | [1] 2.700266
>
> As Vladimir already said, you get indentical results if you call
> EuropeanOption with *separate* values for divident yield and short rate:
>
> R> EuropeanOption(type="call", underlying=1.56, strike=1.6, dividendYield=0.08, riskFreeRate=0.06, maturity=1/2, volatility=0.12)
> Concise summary of valuation for EuropeanOption
>  value   delta   gamma    vega   theta     rho  divRho
>  0.0291  0.3404  2.7003  0.3943 -0.0349  0.2510 -0.2655
> R>
>
> Evidently both packages vary in whether the divident yield is given outright
> (RQuantLib) or as a delta to the short term rate (fOptions).
>
> Dirk
>
> --
> Dirk Eddelbuettel | edd at debian.org | http://dirk.eddelbuettel.com
>