fCertificates (version 0.5-4)

TurboCertificate: Turbo Certificate valuation

Description

This function values a TurboCertificate using barrier option formulas. "Call Turbos/Turbo Bulls" are effectively long down-and-out calls and "Put Turbos/Turbo Bears" are effectively up-and-out-puts.

Usage

TurboCertificate(type, S, X, B, Time, r, r_d, sigma, ratio = 1)

Arguments

type

type flag, either "c" for long and "p" for short

S

the asset price, a numeric value

X

the exercise price (strike), a numeric value.

B

the barrier (knock-out-level), a numeric value.

Time

time to maturity measured in years

r

the annualized rate of interest, a numeric value; e.g. 0.25 means 25% pa.

r_d

the annualized dividend yield, a numeric value; e.g. 0.25 means 25% pa.

sigma

the annualized volatility of the underlying security, a numeric value; e.g. 0.3 means 30% volatility pa.

ratio

ratio, number of underlyings one certificate refers to, a numeric value; e.g. 0.25 means 4 certificates refer to 1 share of the underlying asset

Value

the price of the TurboCertificate

Details

This is simply a convenience wrapper function for the StandardBarrierOption method which can also scale with a ratio. Also known as:

• Knock-out Warrant
• Turbo Bull/Turbo Bear
• Turbo Long/Turbo Short
• Up-and-Out-Call/Down-and-Out-Put
• Barrier Option

Classification according to the SVSP Swiss Derivative Map 2008: Knock-out Warrants (120) Classification according to the SVSP Swiss Derivative Map 2010: Knock-out Warrants (2200)

References

SVSP Swiss Derivative Map http://www.svsp-verband.ch/map/

See Also

StandardBarrierOption

Examples

##
TurboCertificate("c", S=40, X=42, B=38, Time=1, r=0.035, r_d=0, 
  sigma=0.3, ratio=1)

## payoff
S <- seq(0, 100)
p <- TurboCertificate("c", S, X=42, B=38, Time=1, r=0.035, r_d=0, 
  sigma=0.3, ratio=1)
p2 <- TurboCertificate("c", S, X=42, B=38, Time=0, r=0.035, r_d=0, 
  sigma=0.3, ratio=1)
plot(S, p,  type="l", col="red", , ylim=range(p, p2, na.rm=TRUE), 
  xlab="underlying price", ylab="payoff", main="Knock-out Warrant")
lines(S, p2, col="blue")
abline(v=c(38, 42), lty=2, col="gray80")