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oX_TwoAssetCorrelation_Imp( ) Function

Component

Resolution - Exotic Options

 

 

Function Definition

oX_TwoAssetCorrelation_Imp(OptionValue, CallPut, ValueDate, ExpiryDate, SpotOne, SpotTwo, StrikeOne, StrikeTwo, RiskFree, CarryOne, CarryTwo, VolatilityOne, VolatilityTwo, Correlation, OutputFlag)

Given the option value, calculates an implied value for a two-asset correlation option using Zhang's (1995) method

 

 

Function Parameters

 

Parameters

Description

 

Parameter Type

 

Restrictions

.

OptionValue

 

Observed value of the option.

 

Double

 

CallPut

 

Option type.

 

Enumerated Constant

 

1 - Call
2 - Put

ValueDate

 

Valuation date.

 

Date

 

ExpiryDate

 

Expiry date of the option.

 

Date

 

SpotOne

 

Current market price of the first underlying asset.

 

Double

 

SpotOne > 0

SpotTwo

 

Current market price of the second underlying asset.

 

Double

 

SpotTwo > 0

StrikeOne

 

First strike price of the option.

 

Double

 

StrikeTwo

 

Second strike price of the option.

 

Double

 

StrikeTwo > 0

RiskFree

 

Risk free interest rate, expressed as an annually compounded Actual 365 rate.

 

Double

 

CarryOne

 

Net cost of carry of the first underlying asset, expressed as an annually compounded Actual 365 rate.

 

Double

 

CarryTwo

 

Net cost of carry of the second underlying asset, expressed as an annually compounded Actual 365 rate.

 

Double

 

VolatilityOne

 

Annualized volatility of the first underlying asset, expressed as a decimal.

 

Double

 

VolatilityOne > 0

VolatilityTwo

 

Annualized volatility of the second underlying asset, expressed as a decimal.

 

Double

 

VolatilityTwo > 0

Correlation

 

Correlation between the prices of the first and second assets.

 

Double

 

Correlation > -1
Correlation < 1

OutputFlag

 

Indicates which implied value to return. Note: when entering the function, the parameter for which an implied value is calculated may be left blank.

 

Enumerated Constant

 

1 - Spot One
2 - Spot Two
3 - Strike One
4 - Strike Two
5 - Volatility One
6 - Volatility Two

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