QuotientMC function

Quotient option valuation via Monte Carlo (MC) model

Calculates the price of a Quotient option using Monte-Carlo simulations.

QuotientMC(o = OptPx(Opt(Style = "Quotient")), S0_2 = 100, NPaths = 5)

Arguments

• o: The OptQuotient option object to price.
• S0_2: The spot price of the second underlying asset.
• NPaths: Number of monte-carlo simulations to run. Larger number of trials lower variability at the expense of computation time.

Returns

An original OptPx object with Px.MC field as the price of the option and user-supplied S0_2, NPaths parameters attached.

Details

The Monte-Carlo simulations assume the underlying price undergoes Geometric Brownian Motion (GBM). Payoffs are discounted at risk-free rate to price the option. A thorough understanding of the object class construction is recommended. Please see OptPx, Opt for more information.

Examples

(o = QuotientMC())$PxMC #Default Quotient option price.

o = OptPx(Opt(S0=100, ttm=1, K=1.3), r=0.10, q=0, vol=0.1)
(o = QuotientMC(o, S0_2 = 180, NPaths=5))$PxMC

QuotientMC(OptPx(Opt()), S0_2 = 180, NPaths=5)

QuotientMC(OptPx(), S0_2 = 201, NPaths = 5)

QuotientMC(OptPx(Opt(S0=500, ttm=1, K=2)), S0_2 = 1000, NPaths=5)

Author(s)

Richard Huang, Department of Statistics, Rice University, Spring 2015

References

http://www.investment-and-finance.net/derivatives/q/quotient-option.html