blslambda - Black-Scholes elasticity

Syntax

[CallEl, PutEl] = blslambda(Price, Strike, Rate, Time, Volatility, 
Yield)

Arguments

`Price`	Current price of the underlying asset.
`Strike`	Exercise price of the option.
`Rate`	Annualized, continuously compounded risk-free rate of return over the life of the option, expressed as a positive decimal number.
`Time`	Time to expiration of the option, expressed in years.
`Volatility`	Annualized asset price volatility (annualized standard deviation of the continuously compounded asset return), expressed as a positive decimal number.
`Yield`	(Optional) Annualized, continuously compounded yield of the underlying asset over the life of the option, expressed as a decimal number. (Default = 0.) For example, for options written on stock indices, `Yield` could represent the dividend yield. For currency options, `Yield` could be the foreign risk-free interest rate.

Description

[CallEl, PutEl] = blslambda(Price, Strike, Rate, Time, Volatility, yield) returns the elasticity of an option. CallEl is the call option elasticity or leverage factor, and PutEl is the put option elasticity or leverage factor. Elasticity (the leverage of an option position) measures the percent change in an option price per one percent change in the underlying asset price.

Note blslambda can handle other types of underlies like Futures and Currencies. When pricing Futures (Black model), enter the input argument Yield as:

Yield = Rate

When pricing currencies (Garman-Kohlhagen model), enter the input argument Yield as:

Yield = ForeignRate

where ForeignRate is the continuously compounded, annualized risk free interest rate in the foreign country.

Examples

[CallEl, PutEl] = blslambda(50, 50, 0.12, 0.25, 0.3)

CallEl =
    8.1274

PutEl =
   -8.6466

References

Daigler, Advanced Options Trading, Chapter 4.

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