different results with fExoticOptions

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different results with fExoticOptions

SNV Krishna-2
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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Re: different results with fExoticOptions

Arun.stat
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

Arun.stat
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

SNV Krishna-2
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
_____________________________________________________


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View this message in context:
http://r.789695.n4.nabble.com/different-results-with-fExoticOptions-tp447444
5p4474571.html
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Re: different results with fExoticOptions

Arun.stat
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<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.
>
>

        [[alternative HTML version deleted]]

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Re: different results with fExoticOptions

SNV Krishna-2
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: [R-SIG-Finance] 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
<http://r.789695.n4.nabble.com/different-results-with-fExoticOptions-tp44744
45p4474571.html>
5p4474571.html
Sent from the Rmetrics mailing list archive at Nabble.com.

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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
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Re: different results with fExoticOptions

Arun.stat
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 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: [R-SIG-Finance] 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<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.****
>
> ** **
>
        [[alternative HTML version deleted]]


_______________________________________________
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-- Subscriber-posting only. If you want to post, subscribe first.
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