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price

Compute price for equity instrument with NumericalIntegration pricer

Since R2020a

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Syntax

[Price,PriceResult] = price(inpPricer,inpInstrument)
[Price,PriceResult] = price(___,inpSensitivity)

Description

[Price,PriceResult] = price(inpPricer,inpInstrument) computes the instrument price and related pricing information based on the pricing object inpPricer and the instrument object inpInstrument.

example

[Price,PriceResult] = price(___,inpSensitivity) adds an optional argument to specify sensitivities.

example

Examples

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Open Live Script

This example shows the workflow to price a Vanilla instrument when you use a Merton model and a NumericalIntegration pricing method.

Create Vanilla Instrument Object

Use fininstrument to create a Vanilla instrument object. 

VanillaOpt = fininstrument("Vanilla",'ExerciseDate',datetime(2020,3,15),'ExerciseStyle',"european",'Strike',105,'Name',"vanilla_option")
VanillaOpt = 
  Vanilla with properties:

       OptionType: "call"
    ExerciseStyle: "european"
     ExerciseDate: 15-Mar-2020
           Strike: 105
             Name: "vanilla_option"

Create Merton Model Object

Use finmodel to create a Merton model object.

MertonModel = finmodel("Merton",'Volatility',0.45,'MeanJ',0.02,'JumpVol',0.07,'JumpFreq',0.09)
MertonModel = 
  Merton with properties:

    Volatility: 0.4500
         MeanJ: 0.0200
       JumpVol: 0.0700
      JumpFreq: 0.0900

Create ratecurve Object

Create a flat ratecurve object using ratecurve. 

myRC = ratecurve('zero',datetime(2019,9,15),datetime(2020,3,15),0.02)
myRC = 
  ratecurve with properties:

                 Type: "zero"
          Compounding: -1
                Basis: 0
                Dates: 15-Mar-2020
                Rates: 0.0200
               Settle: 15-Sep-2019
         InterpMethod: "linear"
    ShortExtrapMethod: "next"
     LongExtrapMethod: "previous"

Create NumericalIntegration Pricer Object

Use finpricer to create a NumericalIntegration pricer object and use the ratecurve object for the 'DiscountCurve'name-value pair argument.

outPricer = finpricer("numericalintegration",'Model',MertonModel,'DiscountCurve',myRC,'SpotPrice',100,'DividendValue',.01,'VolRiskPremium',0.9,'LittleTrap',false,'AbsTol',0.5,'RelTol',0.4,'Framework',"lewis2001")
outPricer = 
  NumericalIntegration with properties:

                Model: [1x1 finmodel.Merton]
        DiscountCurve: [1x1 ratecurve]
            SpotPrice: 100
         DividendType: "continuous"
        DividendValue: 0.0100
               AbsTol: 0.5000
               RelTol: 0.4000
     IntegrationRange: [1.0000e-09 Inf]
    CharacteristicFcn: @characteristicFcnMerton76
            Framework: "lewis2001"
       VolRiskPremium: 0.9000
           LittleTrap: 0

Price Vanilla Instrument

Use price to compute the price and sensitivities for the Vanilla instrument.

[Price, outPR] = price(outPricer,VanillaOpt,["all"])
Price = 
10.7325

outPR = 
  priceresult with properties:

       Results: [1x6 table]
    PricerData: []


outPR.Results
ans=1×6 table
    Price     Delta      Gamma       Theta      Rho       Vega 
    ______    ______    ________    _______    ______    ______

    10.732    0.5058    0.012492    -12.969    19.815    27.954

Input Arguments

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Pricer object, specified as a scalar NumericalIntegration pricer object. Use finpricer to create the NumericalIntegration pricer object.

Data Types: object

Instrument object, specified as a scalar or vector of Vanilla instrument objects. Use fininstrument to create Vanilla instrument objects.

Data Types: object

(Optional) List of sensitivities to compute, specified as a NOUT-by-1 or a 1-by-NOUT cell array of character vectors or string array with possible values of 'Price', 'Delta', 'Gamma', 'Vega', 'Rho', 'Theta', 'Vegalt', and 'All'.

Note

'Vegalt' is not supported when you price a Vanilla option with a Merton model.

inpSensitivity = {'All'} or inpSensitivity = ["All"] specifies that the output is 'Delta', 'Gamma', 'Vega', 'Rho', 'Theta', 'Vegalt', and 'Price'. This is the same as specifying inpSensitivity to include each sensitivity.

Example: inpSensitivity = {'delta','gamma','vega','rho','theta','vegalt','price'}

Data Types: string | cell

Output Arguments

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Instrument price, returned as a numeric.

Price result, returned as an object. The PriceResult object. The object has the following fields:

  • PriceResult.Results — Table of results that includes sensitivities (if you specify inpSensitivity)

  • PriceResult.PricerData — Structure for pricer data

More About

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Delta

A delta sensitivity measures the rate at which the price of an option is expected to change relative to a $1 change in the price of the underlying asset.

Delta is not a static measure; it changes as the price of the underlying asset changes (a concept known as gamma sensitivity), and as time passes. Options that are near the money or have longer until expiration are more sensitive to changes in delta.

Gamma

A gamma sensitivity measures the rate of change of an option's delta in response to a change in the price of the underlying asset.

In other words, while delta tells you how much the price of an option might move, gamma tells you how fast the option's delta itself will change as the price of the underlying asset moves. This is important because this helps you understand the convexity of an option's value in relation to the underlying asset's price.

Vega

A vega sensitivity measures the sensitivity of an option's price to changes in the volatility of the underlying asset.

Vega represents the amount by which the price of an option would be expected to change for a 1% change in the implied volatility of the underlying asset. Vega is expressed as the amount of money per underlying share that the option's value will gain or lose as volatility rises or falls.

Theta

A theta sensitivity measures the rate at which the price of an option decreases as time passes, all else being equal.

Theta is essentially a quantification of time decay, which is a key concept in options pricing. Theta provides an estimate of the dollar amount that an option's price would decrease each day, assuming no movement in the price of the underlying asset and no change in volatility.

Rho

A rho sensitivity measures the rate at which the price of an option is expected to change in response to a change in the risk-free interest rate.

Rho is expressed as the amount of money an option's price would gain or lose for a one percentage point (1%) change in the risk-free interest rate.

Vegalt

A vegalt sensitivity measures the sensitivity of an option's price to changes in the long-term volatility of the underlying asset.

Version History

Introduced in R2020a

See Also

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