EuropeanOption {RQuantLib} | R Documentation

## European Option evaluation using Closed-Form solution

### Description

The `EuropeanOption` function evaluations an European-style option on a common stock using the Black-Scholes-Merton solution. The option value, the common first derivatives ("Greeks") as well as the calling parameters are returned.

### Usage

    ## Default S3 method:
    EuropeanOption(type, underlying, strike,
            dividendYield, riskFreeRate, maturity, volatility)

    ## S3 method for class 'Option':
    plot
    ## S3 method for class 'Option':
    print
    ## S3 method for class 'Option':
    summary

### Arguments

`type` | A string with one of the values `call` or `put`
`underlying` | Current price of the underlying stock
`strike` | Strike price of the option
`dividendYield` | Continuous dividend yield (as a fraction) of the stock
`riskFreeRate` | Risk-free rate
`maturity` | Time to maturity (in fractional years)
`volatility` | Volatility of the underlying stock

### Details

The well-known closed-form solution derived by Black, Scholes and Merton is used for valuation. Implied volatilities are calculated numerically.

Please see any decent Finance textbook for background reading, and the `QuantLib` documentation for details on the `QuantLib` implementation.

### Value

The `EuropeanOption` function returns an object of class `EuropeanOption` (which inherits from class `Option`). It contains a list with the following components:

`value` | Value of option
`delta` | Sensitivity of the option value for a change in the underlying
`gamma` | Sensitivity of the option delta for a change in the underlying
`vega` | Sensitivity of the option value for a change in the underlying's volatility
`theta` | Sensitivity of the option value for a change in t, the remaining time to maturity
`rho` | Sensitivity of the option value for a change in the risk-free interest rate
`dividendRho` | Sensitivity of the option value for a change in the dividend yield
`parameters` | List with parameters with which object was created

### Note

The interface might change in future release as `QuantLib` stabilises its own API.

### Author(s)

Dirk Eddelbuettel edd@debian.org for the R interface; the QuantLib Group for `QuantLib`

### References

http://quantlib.org for details on `QuantLib`.

### See Also

`EuropeanOptionImpliedVolatility`, `EuropeanOptionArrays`, `AmericanOption`,`BinaryOption`

### Examples

    # simple call with unnamed parameters
    EuropeanOption("call", 100, 100, 0.01, 0.03, 0.5, 0.4)
    # simple call with some explicit parameters, and slightly increased vol:
    EuropeanOption(type="call", underlying=100, strike=100, dividendYield=0.01,
    riskFreeRate=0.03, maturity=0.5, volatility=0.5)

[Package RQuantLib version 0.2.7 Index]