AmericanPutESBinomial function

Estimates ES of American vanilla put using binomial tree.

Estimates ES of American Put Option using binomial tree to price the option and historical method to compute the VaR.

AmericanPutESBinomial(amountInvested, stockPrice, strike, r, volatility,
  maturity, numberSteps, cl, hp)

Arguments

• amountInvested: Total amount paid for the Put Option.
• stockPrice: Stock price of underlying stock.
• strike: Strike price of the option.
• r: Risk-free rate.
• volatility: Volatility of the underlying stock.
• maturity: Time to maturity of the option in days.
• numberSteps: The number of time-steps considered for the binomial model.
• cl: Confidence level for which VaR is computed.
• hp: Holding period of the option in days.

Returns

ES of the American Put Option

Examples

# Market Risk of American Put with given parameters.
   AmericanPutESBinomial(0.20, 27.2, 25, .16, .05, 60, 20, .95, 30)

Author(s)

Dinesh Acharya

References

Dowd, Kevin. Measuring Market Risk, Wiley, 2007.

Lyuu, Yuh-Dauh. Financial Engineering & Computation: Principles, Mathematics, Algorithms, Cambridge University Press, 2002.