

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
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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_____________________________________________________


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_____________________________________________________


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 =
(0.501).
====
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: [RSIGFinance] 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/differentresultswithfExoticOptionstp4474445p4474571.html
Sent from the Rmetrics mailing list archive at Nabble.com.
_______________________________________________
[hidden email] mailing list
https://stat.ethz.ch/mailman/listinfo/rsigfinance Subscriberposting only. If you want to post, subscribe first.
 Also note that this is not the rhelp list where general R questions
should go.
_______________________________________________
[hidden email] mailing list
https://stat.ethz.ch/mailman/listinfo/rsigfinance Subscriberposting only. If you want to post, subscribe first.
 Also note that this is not the rhelp list where general R questions should go.


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 costofcarry 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 =
> (0.501).
>
> ====
> 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: [RSIGFinance] 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/differentresultswithfExoticOptionstp447444> 5p4474571.html< http://r.789695.n4.nabble.com/differentresultswithfExoticOptionstp4474445p4474571.html>
> Sent from the Rmetrics mailing list archive at Nabble.com.
>
> _______________________________________________
> [hidden email] mailing list
> https://stat.ethz.ch/mailman/listinfo/rsigfinance>  Subscriberposting only. If you want to post, subscribe first.
>  Also note that this is not the rhelp list where general R questions
> should go.
>
>
[[alternative HTML version deleted]]
_______________________________________________
[hidden email] mailing list
https://stat.ethz.ch/mailman/listinfo/rsigfinance Subscriberposting only. If you want to post, subscribe first.
 Also note that this is not the rhelp list where general R questions should go.


Hi Arun,
Catch your breath first. You did'nt get to the core as you are probably busy
in figuring out between "Engineer" and "Technologist". And by the way you
can be little soft in answering like everyone others on this forum (as many
others use this to gain something from discussion) and no one here is
denying your wisdom.
For others, my net cost of carry is 1%. So should I still need to input in
the formula as (.05.01) or just .01 is sufficient. Arun you can excuse us,
if you still wanna enlighten me please use my personal ID as this forum is
meant for something meaningful.
Thanks and Regards,
S.N.V. Krishna
From: Arun Kumar Saha [mailto: [hidden email]]
Sent: Friday, March 16, 2012 2:20 PM
To: SNV Krishna
Cc: [hidden email]
Subject: Re: [RSIGFinance] 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 costofcarry 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 =
(0.501).
====
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: [RSIGFinance] 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/differentresultswithfExoticOptionstp447444< http://r.789695.n4.nabble.com/differentresultswithfExoticOptionstp4474445p4474571.html>
5p4474571.html
Sent from the Rmetrics mailing list archive at Nabble.com.
_______________________________________________
[hidden email] mailing list
https://stat.ethz.ch/mailman/listinfo/rsigfinance Subscriberposting only. If you want to post, subscribe first.
 Also note that this is not the rhelp list where general R questions
should go.
[[alternative HTML version deleted]]
_______________________________________________
[hidden email] mailing list
https://stat.ethz.ch/mailman/listinfo/rsigfinance Subscriberposting only. If you want to post, subscribe first.
 Also note that this is not the rhelp list where general R questions should go.


EXCUSE ME SIR!!!
_____________________________________________________
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 1:16 PM, SNV Krishna < [hidden email]> wrote:
> Hi Arun,****
>
> ** **
>
> Catch your breath first. You didnt get to the core as you are probably
> busy in figuring out between Engineer and Technologist. And by the way
> you can be little soft in answering like everyone others on this forum (as
> many others use this to gain something from discussion) and no one here is
> denying your wisdom. ****
>
> ** **
>
> For others, my net cost of carry is 1%. So should I still need to input in
> the formula as (.05.01) or just .01 is sufficient. Arun you can excuse us,
> if you still wanna enlighten me please use my personal ID as this forum is
> meant for something meaningful. ****
>
> ** **
>
> Thanks and Regards,****
>
> ** **
>
> *S.N.V. Krishna*
>
> ****
>
> ** **
>
> *From:* Arun Kumar Saha [mailto: [hidden email]]
> *Sent:* Friday, March 16, 2012 2:20 PM
> *To:* SNV Krishna
> *Cc:* [hidden email]
>
> *Subject:* Re: [RSIGFinance] 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 costofcarry 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 =
> (0.501).
>
> ====
> 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: [RSIGFinance] 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/differentresultswithfExoticOptionstp447444> 5p4474571.html< http://r.789695.n4.nabble.com/differentresultswithfExoticOptionstp4474445p4474571.html>
> Sent from the Rmetrics mailing list archive at Nabble.com.
>
> _______________________________________________
> [hidden email] mailing list
> https://stat.ethz.ch/mailman/listinfo/rsigfinance>  Subscriberposting only. If you want to post, subscribe first.
>  Also note that this is not the rhelp list where general R questions
> should go.****
>
> ** **
>
[[alternative HTML version deleted]]
_______________________________________________
[hidden email] mailing list
https://stat.ethz.ch/mailman/listinfo/rsigfinance Subscriberposting only. If you want to post, subscribe first.
 Also note that this is not the rhelp list where general R questions should go.

