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Hi,
I'm having some trouble running the loop
after obtaining the price of the option.
The function nargout takes value of 65414....something
Please help me resolve this, would like the code to calculate value of the greeks.
Kindly give your inputs
Thanks in Advance
Matlab Code:
I'm having some trouble running the loop
after obtaining the price of the option.
The function nargout takes value of 65414....something
Please help me resolve this, would like the code to calculate value of the greeks.
Kindly give your inputs
Thanks in Advance
Matlab Code:
Code:
function [value,delta,gamma,theta,vega,rho] = BinomialTreeGreeks(putCall,...
exerciseType,S0,K,sigma,r,div,T,n)
%
% This function calculates the American or European option value by a
% binomal tree model.
%
% [value,delta,gamma,theta,vega,rho] = ...
% BinomialTreeGreeks(putCall,exerciseType,S0,K,sigma,r,div,T,n)
%
% Input: putCall: indicates the option type
% putCall = ’Call’ for a call option
% putCall = ’Put’ for a put
% option
% exerciseType: European (’E’) or American (’A’)
% exercise type
% S: Stock price
% K: Strike price
% sigma: Volatility
% r: riskfree rate
% div: Dividend yield
% T: Time to maturity
% n: Number of steps in the tree
%
% OUTPUT: value: option value
% delta: dV/dS
% gamma: dV^2/d^2S
% theta: dV/dT
% vega: dV/dsigma
% rho: dV/dr
%
% EXAMPLE: [value,delta,gamma,theta,vega,rho] = ...
% BinomialTreeGreeks(’Put’,’A’,50,50,0.4,0.05,0.02,2,500)
% Parameters for binomial tree
dt = T/n;
u = exp(sigma*sqrt(dt));
d = 1/u;
p = (exp((r-div)*dt)-d)/(u-d);
q = 1-p;
disc = exp(-r*dt);
% Initialize matrices
stockM = zeros(n+1,n+1);
optionM = zeros(n+1,n+1);
% Create stock tree
stockM (1,1) = S0;
for j = 2:n+1
for i = 1:j-1
stockM(i,j) = stockM(i,j-1)*u;
end
stockM(i+1,j) = stockM(i,j-1)*d;
end
% Set z parameter to calculate the option payoff depending on the
% selected option type (Call, Put)
switch putCall
case 'Call'
z = 1;
case 'Put'
z = -1;
otherwise
error('Check option type!');
end
% Insert terminal values
optionM:),end) = max(z*(stockM:),end)-K),0);
% Value call by working backward from time n-1 to time 0
switch exerciseType
% European option
case 'E'
for j=n:-1:1;
for i=j:-1:1;
optionM(i,j) = disc*(p*optionM(i,j+1)+q*optionM(i+1,j+1));
end
end;
% American exercise type
case 'A'
for j=n:-1:1;
for i=j:-1:1;
optionM(i,j) = max(z*(stockM(i,j)-K),disc*(p*optionM(i,j+1)+q*optionM(i+1,j+1)));
end
end
otherwise
error('Check exercise type!');
end
value = optionM(1,1);
% Calculate greeks
if nargout > 1
delta = (optionM(1,2)-optionM(2,2))/(stockM(1,2)-stockM(2,2));
end
if nargout > 2
deltaUp = (optionM(1,3)-optionM(2,3))/(stockM(1,3)-stockM(2,3));
deltaDown = (optionM(2,3)-optionM(3,3))/(stockM(2,3)-stockM(3,3));
gamma = (deltaUp-deltaDown)/((stockM(1,3)-stockM(3,3))/2);
end
if nargout > 3
theta = (optionM(2,3)-optionM(1,1))/(2*dt);
end
% Calculate vega and rho with re-evaluation
if nargout > 4
vegaUp = feval(@BinomialTreeGreeks,putCall,exerciseType,S0,K,...
sigma+0.01,r,div,T,n);
vegaDown = feval(@BinomialTreeGreeks,putCall,exerciseType,S0,K,...
sigma-0.01,r,div,T,n);
vega = (vegaUp - vegaDown)/(2*0.01);
end
if nargout > 5
rhoUp = feval(@BinomialTreeGreeks,putCall,exerciseType,S0,K,sigma,...
r+0.01,div,T,n);
rhoDown = feval(@BinomialTreeGreeks,putCall,exerciseType,S0,K,sigma,...
r-0.01,div,T,n);
rho = (rhoUp - rhoDown)/(2*0.01);
end
