Spread Approx Option question
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
_______________________________________________ R-SIG-Finance at stat.math.ethz.ch mailing list https://stat.ethz.ch/mailman/listinfo/r-sig-finance -- Subscriber-posting only. If you want to post, subscribe first. -- Also note that this is not the r-help list where general R questions should go.
Dr. Martin Becker Statistics and Econometrics Saarland University Campus C3 1, Room 217 66123 Saarbruecken Germany