optstockbyrgw - Determine American call option prices using Roll-Geske-Whaley option pricing model

Syntax

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.

Description

Price = optstockbyrgw(RateSpec, StockSpec, Settle, Maturity, Strike) computes the American call option prices using the Roll-Geske-Whaley option pricing model.

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

Note   optstockbyrgw computes prices of American calls with a single cash dividend using the Roll-Geske-Whaley option pricing model.

Examples

Consider an American call option with an exercise price of $22 that expires on February 1, 2009. The underlying stock is trading at $20 on June 1, 2008 and has a volatility of 20% per annum. The annualized continuously compounded risk-free rate is 6.77% per annum. The stock pays a single dividend of $2 on September 1, 2008. Using this data, compute price of the American call option using the Roll-Geske-Whaley option pricing model:

Settle = 'Jun-01-2008';
Maturity = 'Feb-01-2009';
AssetPrice = 20;
Strike = 22;
Sigma  = 0.2;
Rate = 0.0677; 
DivAmount = 2;
DivDate = 'Sep-01-2008';

Define StockSpec and RateSpec:

RateSpec = intenvset('ValuationDate', Settle, 'StartDates', Settle, 'EndDates',...
Maturity, 'Rates', Rate, 'Compounding', -1, 'Basis', 0);

StockSpec = stockspec(Sigma, AssetPrice, {'cash'}, DivAmount, DivDate);

Compute the price of the American call :

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

Price =

     0.3359

See Also

impvbyrgw | intenvset | optstocksensbyrgw | stockspec

© 1984-2012- The MathWorks, Inc.    -   Site Help   -   Patents   -   Trademarks   -   Privacy Policy   -   Preventing Piracy   -   RSS