ShortBlackScholesCallVaR function

Derives VaR of a short Black Scholes call option

Function derives the VaR of a short Black Scholes call for specified confidence level and holding period, using analytical solution.

ShortBlackScholesCallVaR(stockPrice, strike, r, mu, sigma, maturity, cl, hp)

Arguments

• stockPrice: Stock price of underlying stock
• strike: Strike price of the option
• r: Risk-free rate and is annualised
• mu: Mean return
• sigma: Volatility of the underlying stock
• maturity: Term to maturity and is expressed in days
• cl: Confidence level and is scalar
• hp: Holding period and is scalar and is expressed in days

Returns

Price of European Call Option

Examples

# Estimates the price of an American Put
   ShortBlackScholesCallVaR(27.2, 25, .03, .12, .2, 60, .95, 40)

Author(s)

Dinesh Acharya

References

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

Hull, John C.. Options, Futures, and Other Derivatives. 4th ed., Upper Saddle River, NJ: Prentice Hall, 200, ch. 11.

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