chooserbybls - Price European simple chooser options using Black-Scholes model

Syntax

Price = chooserbybls(RateSpec, StockSpec, Settle,
Maturity, Strike)

Arguments

RateSpec	The annualized continuously compounded rate term structure. For information on the interest rate specification, see intenvset.
StockSpec	Stock specification. See stockspec.
Settle	NINST-by-1 vector of settlement or trade dates.
Maturity	NINST-by-1 vector of maturity dates.
Strike	NINST-by-1 vector of strike price values.
ChooseDate	NINST-by-1 vector of chooser dates.

Description

Price = chooserbybls(RateSpec, StockSpec, Settle, Maturity, Strike) computes the price for European simple chooser options using the Black-Scholes model.

Price is a NINST-by-1 vector of expected prices.

Note   Only dividends of type continuous can be considered for choosers.

Examples

Consider a European chooser option with an exercise price of $60 on June 1, 2007. The option expires on December 2, 2007. Assume the underlying stock provides a continuous dividend yield of 5% per annum, is trading at $50, and has a volatility of 20% per annum. The annualized continuously compounded risk-free rate is 10% per annum. Assume that the choice must be made on August 31, 2007. Using this data:

AssetPrice = 50;
Strike = 60;
Settlement = 'Jun-1-2007';
Maturity = 'Dec-2-2007'; 
ChooseDate = 'Aug-31-2007';
RiskFreeRate = 0.1;
Sigma = 0.20;
Yield = 0.05

Define the RateSpec and StockSpec:

RateSpec = intenvset('Compounding', -1, 'Rates', RiskFreeRate, 'StartDates',...
Settlement, 'EndDates', Maturity);
StockSpec = stockspec(Sigma, AssetPrice,'continuous',Yield);

Price the chooser option:

Price  = chooserbybls(RateSpec, StockSpec, Settlement, Maturity,...
Strike, ChooseDate)

Price =  

8.9308

References

Rubinstein, Mark, "Options for the Undecided," Risk 4, 1991.

See Also

blsprice | intenvset

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