AmericanCallOpt (version 0.95)

am_call_bin_contpay: Binomial option price with continuous payout from the underlying asset

Description

Pricing of an American call option with continuous payout from the underlying asset using a binomial approximation

Usage

am_call_bin_contpay(S, K, r, y, sigma, t, steps)

Arguments

S

spot price

K

exercise price

r

risk-free interest rate

y

continuous payout

sigma

volatility

t

time to maturity

steps

number of steps in binomial tree

Value

call_price

Option price

Details

With this type of option, the underlying asset provides payouts at each period in time. The payoff structure simplifies the computation to a major extent and makes this a case similar to the one of pricing through Black-Scholes.

References

John Hull, "Options, Futures and other Derivative Securities", Prentice-Hall, second edition, 1993.

Examples

rm(list=ls()) 

S<-100 
K<-100
r<-0.10 
y<-0.02
sigma<-0.25
t<-1
steps<-100

call_price_bin_contpay<-am_call_bin_contpay(S, K, r, y, sigma, t, steps)