FER (version 0.94)

CevPrice: Calculate the constant elasticity of variance (CEV) model option price

Description

Calculate the constant elasticity of variance (CEV) model option price

Usage

CevPrice(
  strike = forward,
  spot,
  texp = 1,
  sigma,
  beta = 0.5,
  intr = 0,
  divr = 0,
  cp = 1L,
  forward = spot * exp(-divr * texp)/df,
  df = exp(-intr * texp)
)

Arguments

strike

(vector of) strike price

spot

(vector of) spot price

texp

(vector of) time to expiry

sigma

(vector of) volatility

beta

elasticity parameter

intr

interest rate (domestic interest rate)

divr

dividend/convenience yield (foreign interest rate)

cp

call/put sign. 1 for call, -1 for put.

forward

forward price. If given, forward overrides spot

df

discount factor. If given, df overrides intr

Value

option price

References

Schroder, M. (1989). Computing the constant elasticity of variance option pricing formula. Journal of Finance, 44(1), 211-219. 10.1111/j.1540-6261.1989.tb02414.x

Examples

# NOT RUN {
spot <- 100
strike <- seq(80,125,5)
texp <- 1.2
beta <- 0.5
sigma <- 2
FER::CevPrice(strike, spot, texp, sigma, beta)

# }