[Returnanalytics-commits] r2056 - pkg/PortfolioAnalytics/sandbox/attribution/R

[noreply at r-forge.r-project.org]

Author: ababii
Date: 2012-06-24 19:14:36 +0200 (Sun, 24 Jun 2012)
New Revision: 2056

Added:
   pkg/PortfolioAnalytics/sandbox/attribution/R/Conv.option.R
Log:
- options/warrants and convertible bonds returns

Added: pkg/PortfolioAnalytics/sandbox/attribution/R/Conv.option.R
===================================================================
--- pkg/PortfolioAnalytics/sandbox/attribution/R/Conv.option.R	                        (rev 0)
+++ pkg/PortfolioAnalytics/sandbox/attribution/R/Conv.option.R	2012-06-24 17:14:36 UTC (rev 2056)
@@ -0,0 +1,54 @@
+#' convert infromation about options, warrants or convertible bonds to the
+#' equivalent of returns
+#' 
+#' The performance of option contracts are measured in exactly the same way as
+#' any other asset but they also generate economic exposures. The key to 
+#' attribution analysis with options is to include the appropriate economic 
+#' exposure for which we can use the option’s delta. The option itself will 
+#' provide part of the valuation; the remainder of the option’s economic value 
+#' must be achieved again by using notional assets:
+#' \deqn{option economic exposure = \delta \times number of options \times strike price = option valuation + notional exposure}
+#' @aliases options attribution
+#' @param \code{n x 8} matrix containing option ID (as rownames), and columns
+#' corresponding to (in particular order): strike price, number of options, 
+#' current option price, end option price, option's delta, returns on the 
+#' underlying
+#' @return This function returns the equivalent of returns for options, 
+#' warrants or convertible bonds
+#' @author Andrii Babii
+#' @seealso \code{\link{Attribution}}
+#' @references Bacon, C. \emph{Practical Portfolio Performance Measurement and
+#' Attribution}. Wiley. 2004. p. 237-241
+#' @keywords derivatives attribution, option attribution
+#' @examples
+#' 
+#' option = matrix(c(1000, 1000, 1000, 300, 400, 10, 20, 30, 40, 50, 10, 11, 12, 13, 14, 12, 13, 14, 15, 16, 0.1, 0.2, 0.3, 0.4, 0.5, 0.1, 0.1, 0.2, 0.2, 0.3), 5, 6)
+#' colnames(option) = c("Strike", "Number", "Current option", "End option", "delta", "returns")
+#' rownames(option) = c("CVX", "XOM", "GE", "WMT", "FB")
+#' Conv.option(option)
+#' 
+#' @export
+Conv.option <- 
+function (option)
+{   # @author Andrii Babii
+  
+    # DESCRIPTION:
+    # Function to compute option returns
+  
+    # Inputs:
+    # option   n x 6 matrix containing option IDs (as rownames), and columns
+    # corresponding to (in the particular order): strike price, number of 
+    # options, current option price, end option price, option's delta, returns
+    # on the underlying
+  
+    # Outputs: 
+    # This function returns the equivalent of returns for options, warrants or
+    # convertible bonds
+  
+    # FUNCTION:
+
+    ecvalue = option[, 1] * option[, 2] * option[, 5]
+    notionalexp = ecvalue - option[, 2] * option[, 3]
+    returns = (notionalexp * option[, 6] + option[, 2] * option[, 4]) / ecvalue
+    return(returns)
+}
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