[R-SIG-Finance] R-SIG-Finance Digest, Vol 107, Issue 11

[Nikos Rachmanis]

Assuming t=1, you forgot to discount

updating the function

fun <- function(x, K=100)
   {
     (gbm(x) - 100) * dnorm(x) * exp(-0.05)
   }

should give you the result you want.

Nikos

On 4/13/2013 6:00 AM, r-sig-finance-request at r-project.org wrote:
> Today's Topics:
>
>     1. euro call by integration (Dominykas Grigonis)
>
>
> ----------------------------------------------------------------------
>
> Message: 1
> Date: Sat, 13 Apr 2013 07:42:23 +0100
> From: Dominykas Grigonis <dominykasgrigonis at gmail.com>
> To: r-sig-finance <r-sig-finance at r-project.org>
> Subject: [R-SIG-Finance] euro call by integration
> Message-ID: <31AE529DE9C041BEB5DEEC9B6837B355 at gmail.com>
> Content-Type: text/plain
>
> Valuing european call option by taking expectation and integrating:
>
> gmb <- function(x,s0=100,r=0.05,vol=0.1){
> s0*exp( (r - vol^2/2) + vol * x)}
>
> fun <- function(x, K=100){
> (gbm(x) - 100) * dnorm(x)}
>
> min = -(log(1) + (0.05-0.1^2/2)) / 0.1
> integrate(fun,min,Inf)
>
> could someone tell me what am I doing wrong? I do not even know if this is R related question or not...
>
> returns 7.153855, while actual risk neutral price is 6.804958
>
> Thank you in advance.
>
> Kind regards,--
> Dominykas Grigonis
>
>
> 	[[alternative HTML version deleted]]
>
>
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> End of R-SIG-Finance Digest, Vol 107, Issue 11
> **********************************************