[R-SIG-Finance] fExoticOptions - CashOrNothingOption discrepancy

Shing Hing Man matmsh at yahoo.com
Sat Apr 30 14:45:44 CEST 2011


Hi,
   I am using CashOrOrNothingOption in fExoticOptions to verify 
Example 2.11.2 in the book
  The complete guide to option pricing formulas (first edition) , by Espen Haug

  > CashOrNothingOption(TypeFlag = "p",  S=100,  X=80, Time=0.75, K=10, r = 0.06,b = 0, sigma = 0.35)@price
[1] 2.215541


In the book, the answer is 2.6710. 
However, if I changed b to -0.06, I have the answer matching the one in the book.
> CashOrNothingOption(TypeFlag = "p",  S=100,  X=80, Time=0.75, K=10, r = 0.06,b = -0.06, sigma = 0.35)@price
[1] 2.671045

Is this is a bug or I have misunderstood the b ?

Thanks in advance for any assistance !

Shing 




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