RQuantLib (version 0.2.2)

BinaryOption: Binary Option evaluation using Closed-Form solution

Description

This function evaluations an Binary option on a common stock using a closed-form solution. The option value as well as the common first derivatives ("Greeks") are returned.

Usage

BinaryOption.default(type, underlying, strike, dividendYield, riskFreeRate,
maturity, volatility, cashPayoff)
## S3 method for class 'Option':
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## S3 method for class 'Option':
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Arguments

type

A string with one of the values call or put

underlying

Current price of the underlying stock

strike

Strike price of the option

dividendYield

Continuous dividend yield (as a fraction) of the stock

riskFreeRate

Risk-free rate

maturity

Time to maturity (in fractional years)

volatility

Volatility of the underlying stock

cashPayoff

Payout amount

Value

• An object of class BinaryOption (which inherits from class Option) is returned. It contains a list with the following components:
• value
  Value of option
• delta
  Sensitivity of the option value for a change in the underlying
• gamma
  Sensitivity of the option delta for a change in the underlying
• vega
  Sensitivity of the option value for a change in the underlying's volatility
• theta
  Sensitivity of the option value for a change in t, the remaining time to maturity
• rho
  Sensitivity of the option value for a change in the risk-free interest rate
• dividendRho
  Sensitivity of the option value for a change in the dividend yield
• parameters
  List with parameters with which object was created

Details

A closed-form solution is used to value the Binary Option. Please see any decent Finance textbook for background reading, and the QuantLib documentation for details on the QuantLib implementation.

References

http://quantlib.org for details on QuantLib.

See Also

AmericanOption,EuropeanOption

Examples

BinaryOption("call", 100, 100, 0.02, 0.03, 0.5, 0.4, 10)