[Returnanalytics-commits] r3884 - pkg/Dowd/R

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

Author: dacharya
Date: 2015-07-30 01:12:06 +0200 (Thu, 30 Jul 2015)
New Revision: 3884

Added:
   pkg/Dowd/R/BlackScholesCallPrice.R
Log:
Function BlackScholesCallPrice added.

Added: pkg/Dowd/R/BlackScholesCallPrice.R
===================================================================
--- pkg/Dowd/R/BlackScholesCallPrice.R	                        (rev 0)
+++ pkg/Dowd/R/BlackScholesCallPrice.R	2015-07-29 23:12:06 UTC (rev 3884)
@@ -0,0 +1,34 @@
+#' Price of European Call Option
+#' 
+#' Derives the price of European call option using the Black-Scholes approach
+#' 
+#' @param stockPrice Stock price of underlying stock
+#' @param strike Strike price of the option
+#' @param rf Risk-free rate and is annualised
+#' @param sigma Volatility of the underlying stock
+#' @param t The term to maturity of the option in years
+#' @return Price of European Call Option
+#' @references Dowd, Kevin. Measuring Market Risk, Wiley, 2007.
+#' 
+#' Hull, John C.. Options, Futures, and Other Derivatives. 5th ed., p. 246.
+#' 
+#' Lyuu, Yuh-Dauh. Financial Engineering & Computation: Principles, 
+#' Mathematics, Algorithms, Cambridge University Press, 2002.
+#' 
+#' @author Dinesh Acharya
+#' @examples
+#' 
+#'    # Estimates the price of an American Put
+#'    BlackScholesCallPrice(27.2, 25, .03, .2, 60)
+#'    
+#' @export
+BlackScholesCallPrice <- function(stockPrice, strike, rf, sigma, t){
+  S <- stockPrice
+  X <- strike
+  # d terms
+  d1 <- (log(S/X) + (rf + (sigma ^ 2) / 2) * t) / (sigma * sqrt(t))
+  d2 <- d1 - sigma * sqrt(t)
+  # Option price
+  y <- stockPrice * pnorm(d1) - exp(- rf * t) * strike * pnorm(d2)
+  return(y)
+}
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