Posted by
Luigi Ballabio on
Nov 26, 2012; 2:31pm
URL: http://quantlib.414.s1.nabble.com/Re-QuantLib-dev-Digest-Vol-78-Issue-3-tp13587p13588.html
Theo,
just to check: I'm not sure that the forward option implemented in
forwardengine.hpp is what you mean as "an option on a forward". What
it prices is an option whose strike will be fixed at a later time as a
percentage of the forward price. For instance, when we close the deal
today we agree that the maturity will be in 9 months, and the strike
will be 90% of the underlying price in 3 months. Three months from
today, we observe the underlying price, we calculate the strike
accordingly, and from that point hence the option is a normal one. Is
this what you had in mind?
Also, I'd like to post the answer to the mailing list as well, since
it might be useful to others. Should I remove your name and/or
address before doing so?
Later,
Luigi
On Thu, Nov 15, 2012 at 11:29 AM, Theo Boafo <
[hidden email]> wrote:
> Hi,
>
> I want to price an European Option on a forward contract, so I can create a
> forward contract using forward in Instrument ie forward.hpp/forward.cpp and
> then use black formula to price.
>
> What does forwardengine.hpp do as from snippet below, the forwardprocess is
> constructed using spot,dividendYield and risk free rate, but my forward
> process is driftless?
>
> Basically what I am getting at is I want to price an option on a commodity
> forward contract.
>
> boost::shared_ptr<GeneralizedBlackScholesProcess> fwdProcess(
> new GeneralizedBlackScholesProcess(spot,
> dividendYield,
> riskFreeRate,
> blackVolatility));
>
> Also I dont see the use of blackformula in the unit test.
>
> There is a forwardoption in the unit test ie.
>
> struct ForwardOptionData {
> Option::Type type;
> Real moneyness;
> Real s; // spot
> Rate q; // dividend
> Rate r; // risk-free rate
> Time start; // time to reset
> Time t; // time to maturity
> Volatility v; // volatility
> Real result; // expected result
> Real tol; // tolerance
> };
>
>
> which uses which is using s,q, and r to form forward price and then use
> blacksholes merton process to price option on forwards, its not
> using,forward.hpp/forward.cpp and black formula.
>
> Regards
>
> Theo
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