AmericanBSPut#

Purpose#

Prices American put options using the Black, Scholes, and Merton method.

Format#

c = AmericanBSPut(S0, K, r, div, tau, sigma)#
Parameters:

  • S0 (scalar) – current price.

  • K (Mx1 vector) – strike prices.

  • r (scalar) – risk free rate.

  • div (scalar) – continuous dividend yield.

  • tau (scalar) – elapsed time to exercise in annualized days of trading.

  • sigma (scalar) – volatility.

Returns:

c (Mx1 vector) – put premiums.

Examples#

S0 = 718.46;
K = { 720, 725, 730 };
r = .0498;
sigma = .2493;

t0 = dtday(2001, 1, 30);
t1 = dtday(2001, 2, 16);
tau = elapsedTradingDays(t0, t1) /
    annualTradingDays(2001);

c = AmericanBSPut(S0, K, r, 0, tau, sigma);
print c;

produces:

16.792288
19.429323
22.296926

References#

This procedure is based upon a quadratic approximation method described by John C. Hull. http://www-2.rotman.utoronto.ca/~hull/technicalnotes/TechnicalNote8.pdf Accessed August 2017.

Source#

finprocs.src

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