Posted by
Jia.Li on
May 10, 2007; 9:19am
URL: http://quantlib.414.s1.nabble.com/Black-Scholes-theoretical-value-tp823p825.html
> "or a couple of days later if settlement days should be considered"
Could you give an example to illustrate this phrase? What would the
discount be between today and the day "a couple of days later"? Thanks in
advance.
Jia
Luigi Ballabio
<luigi.ballabio@g
mail.com> To
Sent by: Jack Jones
quantlib-users-bo <
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Subject
10/05/2007 08:10 Re: [Quantlib-users] Black-Scholes
theoretical value
On Wed, 2007-05-09 at 16:44 -0400, Jack Jones wrote:
> I'd like to calculate the Black-Scholes theoretical value of an
> option.
>
> Here is the relevant setup (questions at bottom):
>
> //==========================
>
> // Underlying price
> shared_ptr<SimpleQuote>
> underlyingPrice(new SimpleQuote(stockPrice));
>
> // Dividend term structure
> shared_ptr<YieldTermStructure>
> dividendTS(new FlatForward(expiryDate,
> dividend,
> Actual360()));
This is not correct. The first argument to FlatForward should be the
evaluation date, or rather the date for which the discount equals 1.
This might be today's date, or a couple of days later if settlement days
should be considered. The same applies to the interest-rate and
volatility term structures. The rest of the setup is correct.
> I have two questions:
>
> 1. what does the "price" argument to option.impliedVolatility()
> represent?
Given an option, and once you have fixed dividend yield and risk-free
rate, you can find the price for a given volatility, or the other way
around. impliedVolatility(price) is the latter calculation; given a
target price, it returns the value of the volatility which causes the
option to have such a price.
> 2. now that I have this object infrastructure built up, what is the
> actual method call to get the theoretical value of the option?
option.NPV()
Later,
Luigi
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