AmericanPutESSim: Estimates ES of American vanilla put using binomial option valuation tree and Monte Carlo
Simulation
Description
Estimates ES of American Put Option using binomial tree to price the option
valuation tree and Monte Carlo simulation with a binomial option valuation
tree nested within the MCS. Historical method to compute the VaR.
Total amount paid for the Put Option and is positive
(negative) if the option position is long (short)
stockPrice
Stock price of underlying stock
strike
Strike price of the option
r
Risk-free rate
mu
Expected rate of return on the underlying asset and is in
annualised term
sigma
Volatility of the underlying stock and is in annualised
term
maturity
The term to maturity of the option in days
numberTrials
The number of interations in the Monte Carlo simulation
exercise
numberSteps
The number of steps over the holding period at each
of which early exercise is checked and is at least 2
cl
Confidence level for which VaR is computed and is scalar
hp
Holding period of the option in days and is scalar
Value
Monte Carlo Simulation VaR estimate and the bounds of the 95confidence interval for the VaR, based on an order-statistics analysis
of the P/L distribution