different results with fExoticOptions

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different results with fExoticOptions

 Hi All,   I am trying to price Average Price option using Levy approximation as given by formula LevyAsianApproxOption() in package fExoticOptions   ## Put option price > LevyAsianApproxOption('p', S = 1120, SA = 1120, X = 1140, Time = 1, time = 1,r = .05, b = .01, sigma = .2) . Option Price:  56.89417   This is very much different from value that I am getting from online java based scripts or other excel based. Several of them gave a price of 49.04.   There is a difference w.r.t call option price as well with same parameters ## call option price > LevyAsianApproxOption('c', S = 1120, SA = 1120, X = 1140, Time = 1, time = 1,r = .05, b = .01, sigma = .2) .. Option Price:  43.21426   The other calculators gave a value of 51.61.   Now I am confused on which one to take. Could anyone explain why this anomaly.   Many thanks for the input and guidance.   Best regards,   S.N.V. Krishna           [[alternative HTML version deleted]] _______________________________________________ [hidden email] 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.
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Re: different results with fExoticOptions

 This post has NOT been accepted by the mailing list yet. Well, look at the definition of 'b' in your formula, it is not direct foreign risk free rate of interest. May consider considering the help page :) 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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Re: different results with fExoticOptions

 In reply to this post by SNV Krishna-2 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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Re: different results with fExoticOptions

 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: [hidden email] [mailto:[hidden email]] On Behalf Of Arun.stat Sent: Thursday, March 15, 2012 7:14 PM To: [hidden email] 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_____________________________________________________ -- View this message in context: http://r.789695.n4.nabble.com/different-results-with-fExoticOptions-tp4474445p4474571.html Sent from the Rmetrics mailing list archive at Nabble.com. _______________________________________________ [hidden email] 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. _______________________________________________ [hidden email] 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.
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Re: 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 <[hidden email]> 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: [hidden email] > [mailto:[hidden email]] On Behalf Of Arun.stat > Sent: Thursday, March 15, 2012 7:14 PM > To: [hidden email] > 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> _____________________________________________________ > > > -- > View this message in context: > > http://r.789695.n4.nabble.com/different-results-with-fExoticOptions-tp447444> 5p4474571.html > Sent from the Rmetrics mailing list archive at Nabble.com. > > _______________________________________________ > [hidden email] 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. > >         [[alternative HTML version deleted]] _______________________________________________ [hidden email] 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.