Hi Arun,

 

Catch your breath first. You did'nt get to the core as you are probably busy
in figuring out between "Engineer" and "Technologist". And by the way you
can be little soft in answering like everyone others on this forum (as many
others use this to gain something from discussion) and no one here is
denying your wisdom. 

 

For others, my net cost of carry is 1%. So should I still need to input in
the formula as (.05-.01) or just .01 is sufficient. Arun you can excuse us,
if you still wanna enlighten me please use my personal ID as this forum is
meant for something meaningful. 

 

Thanks and Regards,

 

S.N.V. Krishna



 

From: Arun Kumar Saha [mailto:arun.kumar.saha@gmail.com] 
Sent: Friday, March 16, 2012 2:20 PM
To: SNV Krishna
Cc: r-sig-finance@r-project.org
Subject: Re: [R-SIG-Finance] different results with fExoticOptions

 

Hi Krishna,

 

I think you did not read the help page properly..................okay, let
me read it for you. In the 1st line you would see that,

 

" 


b

the annualized cost-of-carry rate, a numeric value; e.g. 0.1 means 10% pa

"

 

It never says that 'b' will be your foreign risk free rate of interest. I
believe, you have messed up with CoC and Foreign interest rate!!! 

 

Assuming your underlying is some Foreign currency, the required CoC will be
"rd - rf" (with usual meaning) because holding a foreign currency will pay
you dividend at the rate of rf. May consult some fundamental text book on
asset pricing for more details.

 

If you are an Engineer then just putting "(0.05-.01)" should be sufficient
for you because it works perfectly in every case and it must therefore be
true. From a Technologist's point of view above explanation (or consultation
of some basic text book) should suffice your purpose. If still not then I
may suggest you just to duck Mr. Levy and formulate your own pricing formula
from scratch!!

 

Thanks and regards,

 

_____________________________________________________

Arun Kumar Saha, FRM
QUANTITATIVE RISK AND HEDGE CONSULTING SPECIALIST
Visit me at: http://in.linkedin.com/in/ArunFRM
_____________________________________________________



On Fri, Mar 16, 2012 at 8:22 AM, SNV Krishna <krishna@primps.com.sg> wrote:

Hi Arun,

Thanks for this and the answer matches. But this led to another question;
which is the right way to input the value for b. I saw on the help file and
example given there suggests that the entry as b = 0.01 and not b =
(0.5-01).

====
Example
## Levy Asian Approximation:
  LevyAsianApproxOption(TypeFlag = "c", S = 100, SA = 100, X = 105,
    Time = 0.75, time = 0.50, r = 0.10, b = 0.05, sigma = 0.15)
===============

Can any one or the author suggest the right way.

Thanks and best regards,

S.N.V. Krishna



-----Original Message-----
From: r-sig-finance-bounces@r-project.org
[mailto:r-sig-finance-bounces@r-project.org] On Behalf Of Arun.stat
Sent: Thursday, March 15, 2012 7:14 PM
To: r-sig-finance@r-project.org
Subject: Re: [R-SIG-Finance] different results with fExoticOptions

Here, it is how you should use these formulas:

"The other calculators gave a value of 51.61"

> LevyAsianApproxOption('c', S = 1120, SA = 1120, X = 1140, Time = 1,
> time =
+ 1,r = .05, b = (0.05-.01), sigma = .2)

Title:
 Levy Asian Approximated Option

Call:
 LevyAsianApproxOption(TypeFlag = "c", S = 1120, SA = 1120, X = 1140,
    Time = 1, time = 1, r = 0.05, b = (0.05 - 0.01), sigma = 0.2)

Parameters:
         Value:
 TypeFlag c
 S        1120
 SA       1120
 X        1140
 Time     1
 time     1
 r        0.05
 b        0.04
 sigma    0.2

Option Price:
 51.61407

Description:
 Thu Mar 15 16:42:38 2012


HTH,

Thanks and regards,

_____________________________________________________

Arun Kumar Saha, FRM
QUANTITATIVE RISK AND HEDGE CONSULTING SPECIALIST Visit me at:
http://in.linkedin.com/in/ArunFRM
_____________________________________________________



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