Re: Calculating American Early Exercise Premium

Posted by nabbleuser2008 on Aug 25, 2008; 8:15pm
URL: http://quantlib.414.s1.nabble.com/Calculating-American-Early-Exercise-Premium-tp1575p1581.html

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.

nabbleuser2008 wrote

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.

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...

On Mon, Aug 25, 2008 at 7:32 PM, nabbleuser2008 <[e-mail]> 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 <[e-mail]>
>>> 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.
>>>>
>>>>
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>
> --
> 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.
>
>
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code.cpp