Hi all,
I am currently using *BlackProcess* to price options (both ITM and OTM) and
I have a doubt about the *x0* argument of the constructor: I've figured out
it's the forward price of the security, because Black's model uses that to
take into account e.g. implied dividend yield and in the end it uses risk
free term structure to discount options' prices.
This is my snippet:
__________________________________________________________________
// ...
// Exercise
boost::shared_ptr< Exercise > europeanExercise(
new EuropeanExercise(maturity));
// Select underlying price according to maturity date
boost::shared_ptr< Quote > underlyingQ;
for(int i = 0; i < maturityArray_.size(); i++)
{
if(maturity == maturityArray_[i])
{
underlyingQ.reset(new SimpleQuote(forwardPrices[i]));
break;
}
}
if (!underlyingQ)
return -1.0; // Error?
Handle< Quote > underlyingH(underlyingQ);
// Bootstrap interest rates curve
Handle< YieldTermStructure > riskFreeTSH(riskFreeTS);
// Payoff
boost::shared_ptr< StrikedTypePayoff > payoff(
new PlainVanillaPayoff(type, strike));
// Process
boost::shared_ptr< BlackProcess > blackProcess(
new BlackProcess(underlyingH, riskFreeTSH, Handle<
BlackVolTermStructure >(forwardVolSurface_)));
// Options
VanillaOption europeanOption(payoff, europeanExercise);
europeanOption.setPricingEngine(boost::shared_ptr< PricingEngine >(
new
AnalyticEuropeanEngine(blackProcess)));
//...
__________________________________________________________________
*maturityArray_* and *forwardPrices* are arrays of the same length that have
forward dates and forward prices inside.
As you can see, *underlyingQ* is chosen from an array of forward prices by
matching maturity date from *maturityArray_* array, and then used in
*BlackProcess* constructor as *x0*: is this correct? Or is *x0* supposed to
be the underlying spot price?
--
View this message in context: http://quantlib.10058.n7.nabble.com/A-question-on-BlackProcess-constructor-x0-argument-tp16034.html
Sent from the quantlib-users mailing list archive at Nabble.com.
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