Calculating American Early Exercise Premium
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Aug 25, 2008; 3:30pm
Calculating American Early Exercise Premium
 
32 posts
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Hi,
I'm trying to calculate the european option price from an american by taking out the early exercise premium. I first use FDDividendAmericanEngine to calculte the implied vol, then use Barone-Adesy and Whaley engine and Black Scholes engines to calculate the american and european prices which I thought would allow me to get the american premium. But, when I do this calculation, my two option prices always match. Do you think my above thinking is flawed or it could be due to a programming error on my part. Anycase, if you have a better alternative for what I'm trying to do, I really appreciate to hear that too. Thank you very much. C |
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Aug 25, 2008; 4:00pm
Re: Calculating American Early Exercise Premium
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622 posts
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mmm... in the case of a call option on a non-dividend paying stock the
american and european prices are the same. Do you have dividends? What about put options? ciao -- Nando On Mon, Aug 25, 2008 at 5:30 PM, nabbleuser2008 <[hidden email]> wrote: > > Hi, > I'm trying to calculate the european option price from an american by > taking out the early exercise premium. I first use FDDividendAmericanEngine > to calculte the implied vol, then use Barone-Adesy and Whaley engine and > Black Scholes engines to calculate the american and european prices which I > thought would allow me to get the american premium. > > But, when I do this calculation, my two option prices always match. Do you > think my above thinking is flawed or it could be due to a programming error > on my part. Anycase, if you have a better alternative for what I'm trying > to do, I really appreciate to hear that too. > > Thank you very much. > > C > -- > View this message in context: http://www.nabble.com/Calculating-American-Early-Exercise-Premium-tp19146072p19146072.html > Sent from the quantlib-users mailing list archive at Nabble.com. > > > ------------------------------------------------------------------------- > This SF.Net email is sponsored by the Moblin Your Move Developer's challenge > Build the coolest Linux based applications with Moblin SDK & win great prizes > Grand prize is a trip for two to an Open Source event anywhere in the world > http://moblin-contest.org/redirect.php?banner_id=100&url=/ > _______________________________________________ > QuantLib-users mailing list > [hidden email] > https://lists.sourceforge.net/lists/listinfo/quantlib-users > ... [show rest of quote] ------------------------------------------------------------------------- This SF.Net email is sponsored by the Moblin Your Move Developer's challenge Build the coolest Linux based applications with Moblin SDK & win great prizes Grand prize is a trip for two to an Open Source event anywhere in the world http://moblin-contest.org/redirect.php?banner_id=100&url=/ _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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Aug 25, 2008; 4:33pm
Re: Calculating American Early Exercise Premium
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32 posts
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thanks.
the stocks I've tried do have the dividends. I didn't try the puts since i'm only interested in calls for my current work, but I can check the puts. thank you. C
... [show rest of quote]
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Aug 25, 2008; 5:32pm
Re: Calculating American Early Exercise Premium
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32 posts
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Upon further investigation, for call options, I noticed that the two prices differ by a small amount in some cases, specially for the longer maturities, but the difference is in 1/100th of a penny, so the difference is not significant when pricing to the nearest penny.
Does that observation make sense ? I expected to see bigger premium, specially for longer maturities. I am looking at upto almost 2 years maturity. Thanks much for any suggestions, and comments ..
... [show rest of quote]
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Aug 25, 2008; 5:51pm
Re: Calculating American Early Exercise Premium
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622 posts
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It would help to know the specs of the option you're trying to price:
strike, vol, expiry, spot value, interest rate, dividends... On Mon, Aug 25, 2008 at 7:32 PM, nabbleuser2008 <[hidden email]> wrote: > > Upon further investigation, for call options, I noticed that the two prices > differ by a small amount in some cases, specially for the longer maturities, > but the difference is in 1/100th of a penny, so the difference is not > significant when pricing to the nearest penny. > > Does that observation make sense ? I expected to see bigger premium, > specially for longer maturities. I am looking at upto almost 2 years > maturity. > > Thanks much for any suggestions, and comments .. > > > > nabbleuser2008 wrote: >> >> thanks. >> >> the stocks I've tried do have the dividends. I didn't try the puts since >> i'm only interested in calls for my current work, but I can check the >> puts. >> >> thank you. >> C >> >> >> Ferdinando Ametrano wrote: >>> >>> mmm... in the case of a call option on a non-dividend paying stock the >>> american and european prices are the same. >>> Do you have dividends? What about put options? >>> >>> ciao -- Nando >>> >>> On Mon, Aug 25, 2008 at 5:30 PM, nabbleuser2008 <[hidden email]> >>> wrote: >>>> >>>> Hi, >>>> I'm trying to calculate the european option price from an american by >>>> taking out the early exercise premium. I first use >>>> FDDividendAmericanEngine >>>> to calculte the implied vol, then use Barone-Adesy and Whaley engine >>>> and >>>> Black Scholes engines to calculate the american and european prices >>>> which I >>>> thought would allow me to get the american premium. >>>> >>>> But, when I do this calculation, my two option prices always match. Do >>>> you >>>> think my above thinking is flawed or it could be due to a programming >>>> error >>>> on my part. Anycase, if you have a better alternative for what I'm >>>> trying >>>> to do, I really appreciate to hear that too. >>>> >>>> Thank you very much. >>>> >>>> C >>>> -- >>>> View this message in context: >>>> http://www.nabble.com/Calculating-American-Early-Exercise-Premium-tp19146072p19146072.html >>>> Sent from the quantlib-users mailing list archive at Nabble.com. >>>> >>>> >>>> ------------------------------------------------------------------------- >>>> This SF.Net email is sponsored by the Moblin Your Move Developer's >>>> challenge >>>> Build the coolest Linux based applications with Moblin SDK & win great >>>> prizes >>>> Grand prize is a trip for two to an Open Source event anywhere in the >>>> world >>>> http://moblin-contest.org/redirect.php?banner_id=100&url=/ >>>> _______________________________________________ >>>> QuantLib-users mailing list >>>> [hidden email] >>>> https://lists.sourceforge.net/lists/listinfo/quantlib-users >>>> >>> >>> ------------------------------------------------------------------------- >>> This SF.Net email is sponsored by the Moblin Your Move Developer's >>> challenge >>> Build the coolest Linux based applications with Moblin SDK & win great >>> prizes >>> Grand prize is a trip for two to an Open Source event anywhere in the >>> world >>> http://moblin-contest.org/redirect.php?banner_id=100&url=/ >>> _______________________________________________ >>> QuantLib-users mailing list >>> [hidden email] >>> https://lists.sourceforge.net/lists/listinfo/quantlib-users >>> >>> >> >> > > -- > View this message in context: http://www.nabble.com/Calculating-American-Early-Exercise-Premium-tp19146072p19148187.html > Sent from the quantlib-users mailing list archive at Nabble.com. > > > ------------------------------------------------------------------------- > This SF.Net email is sponsored by the Moblin Your Move Developer's challenge > Build the coolest Linux based applications with Moblin SDK & win great prizes > Grand prize is a trip for two to an Open Source event anywhere in the world > http://moblin-contest.org/redirect.php?banner_id=100&url=/ > _______________________________________________ > QuantLib-users mailing list > [hidden email] > https://lists.sourceforge.net/lists/listinfo/quantlib-users > ... [show rest of quote] ------------------------------------------------------------------------- This SF.Net email is sponsored by the Moblin Your Move Developer's challenge Build the coolest Linux based applications with Moblin SDK & win great prizes Grand prize is a trip for two to an Open Source event anywhere in the world http://moblin-contest.org/redirect.php?banner_id=100&url=/ _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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Aug 25, 2008; 6:05pm
Re: Calculating American Early Exercise Premium
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3579 posts
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On Aug 25, 2008, at 7:51 PM, Ferdinando Ametrano wrote: > It would help to know the specs of the option you're trying to price: > strike, vol, expiry, spot value, interest rate, dividends... Sendng your code might help even more... Luigi ------------------------------------------------------------------------- This SF.Net email is sponsored by the Moblin Your Move Developer's challenge Build the coolest Linux based applications with Moblin SDK & win great prizes Grand prize is a trip for two to an Open Source event anywhere in the world http://moblin-contest.org/redirect.php?banner_id=100&url=/ _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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Aug 25, 2008; 7:02pm
Re: Calculating American Early Exercise Premium
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32 posts
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In reply to this post by Ferdinando M. Ametrano-3
Dear Nando,
Attached, pls find the values. I'll send the code in a followup email as soon as I collect the relavent parts.. Thank you very much.
... [show rest of quote]
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Aug 25, 2008; 8:15pm
Re: Calculating American Early Exercise Premium
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32 posts
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Hi Luigi, Nando,
Here's the program part (code.cpp) I'm using for this calculation. I've attached only the parts I think is relavent. Pls let me know if anything important is missing. Thanks much.
... [show rest of quote]
code.cpp
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