Re: Question about Black Formula results
Posted by Luigi Ballabio on Jul 26, 2005; 7:20am
URL: http://quantlib.414.s1.nabble.com/Question-about-Black-Formula-results-tp3942p3943.html
Benjamin Janson wrote:
>
> just to get a feel for the QuandLib I tried to implement a simple
> call option with the Black formula. But the results won't make sense
> to me.
Benjamin,
the signature of the BlackFormula constructor is:
BlackFormula(Real forward,
DiscountFactor discount,
Real variance,
const boost::shared_ptr<StrikedTypePayoff>& payoff);
You should pass as the first argument the forward price, and as the
third argument its variance (that's where the maturity comes in.)
In your code, you should replace:
BlackFormula Black(underlying, discount_factor, vola, payoff);
with:
Real forward = underlying/discount_factor;
Real variance = vola*vola*maturity;
BlackFormula Black(forward, discount_factor, variance, payoff);
to use the class as intended.
This said, the results are still now what you expect---namely, I get:
Black Value: 2.72193
Black Delta: 0.556433
Black Gamma: 0.0625584
Black Vega: 10.4325
Black Rho: 8.08392
but the above are consistent with the results on a few other
calculators I checked them against. Maybe there's something else
missing? For instance, did your estimate include any cost of carry?
Later,
Luigi
----------------------------------------
Olmstead's Law:
After all is said and done, a hell of a lot more is said
than done.