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Re: European Option newbie question

Posted by Ferdinando M. Ametrano-3 on Feb 22, 2005; 11:24am
URL: http://quantlib.414.s1.nabble.com/European-Option-newbie-question-tp3614p3615.html

Hi Heri


>I tried to price a european call option with quote 7, strike 8, mean
>annual growth rate 5%, annual volatility 10%, a risk free rate of 5% and a
>duration of 1 year.
>[...]
>std::cout << "Value: " << EuropeanOption(Option::Call , 7, 8, 0.05 , 0.05
>, 1, 0.1).value() << std::endl;
>[...]
>that code returns 0.0300238 but in fact it should be something like
>0.0823, isnt it?

QuantLib doesn't accept the growth rate as input, but the dividend yield,
where:
growth rate = risk free - dividend yield

So just input the 0% dividend yield which corresponds to the 5% growth rate
and you'll find the 0.0823 value.

ciao -- Nando