BSOption Procedure

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@BSOPTION computes the value of a European call or put option using the Black-Scholes formula.

@BSOption( options ) value

Parameters

value

(output) value of the option

Options

PRICE=current price of the stock

STRIKE=strike price

EXPIRE=time to expiration (in fractions of a year) [1.0]

RATE=riskless interest rate (annual) [0.05]

SIGMA=volatility (annualized) [.20]

CASHFLOW=cash flow rate from security (annual rate) [0.0]

Example

The procedure doesn't display any direct output. The computed value is in the value parameter. In this example, values are computed for two call and two put options and displayed.

* Tsay, Analysis of Financial Time Series, 3rd edition

* Examples 6.5 and 6.6 from pp 302-303

* Example 6.5

@BSoption(price=80,sigma=.20,rate=.08,strike=90,expire=.25) callvalue

@BSoption(price=80,sigma=.20,rate=.08,strike=90,expire=.25,put) putvalue

disp "Example 6.5" *.## "Call" callvalue "Put" putvalue

* Example 6.6

@BSoption(price=80,sigma=.20,rate=.08,strike=81,expire=.25) callvalue

@BSoption(price=80,sigma=.20,rate=.08,strike=81,expire=.25,put) putvalue

disp "Example 6.6" *.## "Call" callvalue "Put" putvalue