Spread Approx Option question
Thanks to everyone for their help. I have it working now and the results look correct. Have a great weekend. Ben On Fri, Jun 11, 2010 at 9:07 AM, Martin Becker
<martin.becker at mx.uni-saarland.de> wrote:
I guess that there is a mistake in fExoticOptions' SpreadApproxOption() - function; discounting seems to be done twice (SpreadApproxOption() calls GBSOption(), which already has discounting, but inserts an additional factor exp(-r*t)). At least, 0.9048*exp(0.05) gives the result you had expected. Best - Martin On 10.06.2010 23:12, Ben Cooper wrote:
Hi, I'm asking a question for a friend who couldn't post for to the site today. He was trying to use the function Spread Approx Option from the package fExoticOptions. The example he showed me was, SpreadApproxOption(TypeFlag = "c", S1 = 28, S2 = 20, X = 7, Time = 1, r = .05, sigma1 = 0, sigma2 = 0, rho = 1) This is returning an option price of 0.9048. Shouldn't the option price be the simple PV of 1 at the .05 rate? What is the math that causes the difference here? We've also run this same example through the Haug excel model that comes with his book, and am getting a value of .9512. This is more in line with what I'd expect. Thanks Ben
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