Description |
Consider an American put option on a non-dividend paying stock. The current stock price is $32, the option strike price is $30, the riskless rate is 4.25% (expressed on an actual/365 basis), annualized volatility is 30%, and the option maturity date is 15 December 2003. What is the value of the option assuming a valuation date of 15 February 2003? |
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Function Specification |
=oBIN(2, 2, "15/2/03", "15/12/03", 32, 30, 0.3, 0.0425, 0, 200, 0) |
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Parameter Name |
Parameter Value |
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CallPut |
2 |
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Exercise Style |
2 |
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Value Date |
15/2/03 |
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Maturity Date |
15/12/03 |
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Spot |
$32 |
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Exercise |
$30 |
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Volatility |
0.30 |
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Risk Free |
0.0425 |
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Dividend Yield |
0 |
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Steps |
200 |
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Output Flag |
0 |
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Solution |
Given that the underlying stock does not pay a discrete dividend during the life of the option, this option can be valued using a binomial tree model with constant timesteps. If we build a tree with 200 timesteps, the oBIN( ) function returns an option value of: OV = 2.3969 |
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Greeks |
The following Greeks are computed using the formulas specified in oBIN( ) Model Greeks: |
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Delta |
-0.3458975 |
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Gamma |
0.0419041 |
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Theta |
-1.8317323 |
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Vega |
10.622727 |
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Rho |
-1.508379 |
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