CompoundBS function

Compound option valuation with Black-Scholes (BS) model

CompoundBS(o = OptPx(Opt(Style = "Compound")), K1 = 10, T1 = 0.5,
  Type = c("cc", "cp", "pp", "pc"))

Arguments

• o: = OptPx object
• K1: The first Strike Price (of the option on the option)
• T1: The time of first expiry (of the option on the option)
• Type: Possible choices are cc - call option on call option cp - call on put pc - put on call pp - put on put

Returns

A list of object 'OptCompound' containing the option parameters binomial tree parameters and compound option parameters

Examples

(o <- CompoundBS())$PxBS #price compound option with default parameters

o = OptPx(Opt(Style='Compound'), r=0.05, q=0.0, vol=0.25)
CompoundBS(o,K1=10,T1=0.5)

o = Opt(Style='Compound', S0=50, K=52, ttm=1)
CompoundBS(o=OptPx(o, r=.05, q=0, vol=.25),K1=6,T1=1.5)

o = Opt(Style='Compound', S0=90, K=100, ttm=1.5)
CompoundBS(o=OptPx(o, r=.05, q=0, vol=.25),K1=15,T1=1)

o = Opt(Style='Compound', S0=15, K=15, ttm=0.25)
CompoundBS(o=OptPx(o, r=.05, q=0, vol=.25),K1=3,T1=1.5)

Author(s)

Robert Abramov