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