Sec PRC V29

SecPrcV2.9 Excel add-in This is version 2.
9 of the Security Pricing Excel add-in 2010 Mark Broadie, Ozgur Kaya and Guy Shahar
Analytical Option Formulas Stock price Volatility Dividend rate Interest rate Option maturity Strike 110 Black-Scholes 20.0% 1.0% Cash-or-nothing 5.0% 1.0 Asset-or-nothing 100 European implied volatility #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
Option type c p c p c p c p
Barrier #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
Option type uop uip dop dip uoc uic doc dic
Barrier level 120 120 80 80 120 120 80 80
Rebate 0
Black-Scholes model price and Greeks Stock price Volatility Dividend rate Interest rate Option maturity Strike Option type 100 20.0% 0.0% 0.0% 1.0 100 Call Black-Scholes Price #NAME? Delta #NAME? Gamma #NAME? Vega #NAME? Theta #NAME? Cash-or-nothing Price #NAME? Delta #NAME? Gamma #NAME? Vega #NAME? Theta #NAME?
Rebate Barrier Option Type
0 120 uop
Price Delta Gamma Vega Theta
Barrier #NAME? #NAME? #NAME? #NAME? #NAME?
Asset-or-nothing Price #NAME? Delta #NAME? Gamma #NAME? Vega #NAME? Theta #NAME?
Analytical: Merton Option Formulas Stock price Volatility Arrival rate of jumps in returns Mean proportional jump in return size Volatility of proportional jump in return size Dividend rate Interest rate Option maturity Strike Option type 40 20.0% 40.0% -20.0% 20.0% 0.0% 3.0% 1.0 30 Call Merton price #NAME? Merton price and Greeks Price #NAME? Delta #NAME? Gamma #NAME? Vega #NAME? Theta #NAME?
Analytical: Stochastic Volatility (SV) Option Formulas Stock price Initial volatility Speed of mean reversion Long-run mean volatility Volatility of variance Correlation Dividend rate Interest rate Option maturity Strike Option type 100 20.0% 2.0 20.0% 0.1 -50.0% 0.0% 3.0% 1.0 100 Call
SV price #NAME? SV price and Greeks Price #NAME? Delta #NAME? Gamma #NAME? Vega #NAME? Theta #NAME?
Analytical: Stochastic Volatility and Jumps in Returns Option Formulas Stock price Initial volatility Speed of mean reversion Long-run mean volatility Volatility of variance Correlation Arrival rate of jumps in returns Mean proportional jump in return size Volatility of proportional jump in return size Dividend rate Interest rate Option maturity Strike Option type 100 20.0% 2.0 20.0% 0.1 -50.0% 150.0% -2.0% 3.0% 0.0% 3.0% 0.5 110 Call
SVJ price #NAME?
SVJ price and Greeks Price #NAME? Delta #NAME? Gamma #NAME? Vega #NAME? Theta #NAME?
Lattice: One-Dimensional Flexible Payoff Binomial Lattice Computations Stock price 100 Volatility 20.00% Dividend rate 0.00% Interest rate 5.00% Option maturity 0.4 Payoff function max(k-s,0) Constants k (or k1) 95 k2 105 k3 0.1 Knock-out function (s>k2) AND (t>k3) Option type ('a' or 'e') a Binomial time steps 30 Flexible payoff binomial lattice Price #NAME? Delta #NAME? CPU sec #NAME?
Standard American binomial lattice Price #NAME? Price #NAME?
Option type c p
Lattice: One-Dimensional Standard Binomial Lattice Computations Stock price Volatility Dividend rate Interest rate Option maturity Strike Binomial time steps 100 25.0% 2.0% 5.0% 0.5 98 100 Standard American binomial lattice Price #NAME? Price #NAME? Option type c p
Implied volatility Implied volatility
Standard American binomial lattice #NAME? #NAME?
Lattice: Two-Dimensional Flexible Payoff Binomial Lattice Computations Stock 1 Stock 2 Stock price 105 100 Volatility 25.0% 30.0% Correlation -30.0% Dividend rate 0.0% 0.0% Interest rate 5.0% Option maturity 1.0 Payoff function max(average(s1,s2)-k,0) Constants k (or k1) 120 k2 500 k3 0 Knock-out function Option type ('a' or 'e') e Binomial time steps 20 Flexible payoff 2d binomial lattice #NAME? #NAME? #NAME? #NAME?
Price Delta1 Delta2 CPU sec
Exact Simulation: Multiple Asset Multiple Time-Step Black-Scholes Model Stock 1 Stock 2 Stock 3 100 100 100 20.0% 25.0% 20.0% 100.0% 15.0% -50.0% 15.0% 100.0% -25.0% -50.0% -25.0% 100.0% 2.0% 0.0% 1.0% 5.0% 6 2.0 max(average(s1,s2,s3)-k,0) 105 Simulation Results Price #NAME? Std error #NAME? RSQ #NAME? CPU sec #NAME?
Stock price Volatility Correlation matrix
Dividend rate Interest rate Number of time steps Maturity (or time vector) Payoff function Constants k (or k1) k2 k3 Knock-out function Control variate function max(s1-k,0)+max(s2-k,0)+max(s3-k,0) Exact value for control variate #NAME? Random number seed 5667 Number of simulation trials 20 LHS 1
Simulation
The sim_k_asset function assumes that the option payoff defined by the payoff function occurs at the maturity of the option (similarly for the control variate function). If not, the discounting can be done manually in the payoff function. This example shows simulation being used to price a basket option, using the sum of vanilla calls as a control. A better control would be the geometric average of the basket. In this example, 6 time steps are unnecessary, since the payoff does not depend on stock prices at intermediate times. Changing the number of time steps to 1 will give the same result (in expectation), but with less CPU time. In general, the payoff function can refer to the variable si.j, meaning the price of stock i at time index j. si is short for si.m where m is the time index corresponding to the option maturity. The payoff and control functions can also refer to the time variable t (see the lattice_1d worksheet for an example of using t in the knock-out function).
Exact Simulation: Single Asset Multiple Time-Step Black-Scholes Model
Stock price 100 Volatility 20.0% Dividend rate 2.0% Interest rate 5.0% Number of time steps 6 Maturity (or time vector) 0.5 Payoff function max(s1.6-k,0) Constants k (or k1) 100 k2 k3 Knock-out function Control variate function Exact value for control variate Random number seed 5667 Number of simulation trials 20 LHS 1
Simulation Results Price #NAME? Std error #NAME? RSQ #NAME? CPU sec #NAME?
The sim_1asset function is but with one asset (so no c
The payoff string must use time index. For example, s time index 6. The stock pri referred to simply as s1.
The sim_1asset function is a special case of sim_k_asset, but with one asset (so no correlation input is needed). The payoff string must use the variables s1.n where n is the time index. For example, s1.6 refers to the stock price at time index 6. The stock price at maturity can also be referred to simply as s1.
Exact Simulation: Merton Jump-Diffusion Model
Stock price 100 Merton Volatility 15.0% simulation Arrival rate of jumps in returns 10.0% Price #NAME? Mean proportional jump in return size -60.0% Std error #NAME? Volatility of proportional jump in return size 40.0% RSQ #NAME? Dividend rate 2.0% CPU sec #NAME? Interest rate 5.0% Number of time steps 5 Maturity (or time vector) 0 0.1 0.2 0.4 0.6 Payoff function max(s.5-k,0) Constants k (or k1) 100 The sim_merton payoff funct k2 95 s.j, which refers to the stock k3 90 time variable t can also be us Knock-out function (s.2<k2) OR (s.3<k3) payoff) function. Control variate function max(s.5-k,0) Exact value for control variate #NAME? This worksheet shows the us Random number seed 5667 call formula as a control for p Number of simulation trials 30 out call option. (By deleting t the control the simulation and Merton formula for consisten
Merton formula #NAME?
Option Error type Sim - formula c #NAME?
1.0 The sim_merton payoff function can take the variables s.j, which refers to the stock price at time index j. The time variable t can also be used in the knock-out (or payoff) function. This worksheet shows the use of the Merton European call formula as a control for pricing a discrete up-andout call option. (By deleting the knock-out function and the control the simulation and be checked with the Merton formula for consistency.)
Exact Simulation: SV Stochastic Volatility Model Stock price 100 Initial volatility 10.0% Speed of mean reversion 2.0 Long-run mean volatility 10.0% Volatility of variance 0.1 Correlation -50.0% Dividend rate 0.0% Interest rate 3.0% Number of time steps 1 Maturity (or time vector) 0.5 Payoff function max(s-k,0) Constants k (or k1) 100 k2 110 k3 150 Knock-out function Control variate function Exact value for control variate Random number seed 5667 Number of simulation trials 30 SV simulation Price #NAME? Std error #NAME? RSQ #NAME? CPU sec #NAME?
SV formula #NAME?
Euler Simulation: SV Stochastic Volatility Model Stock price 100 Initial volatility 10.0% Speed of mean reversion 2.0 Long-run mean volatility 10.0% Volatility of variance 0.1 Correlation -50.0% Dividend rate 0.0% Interest rate 3.0% Number of time steps 5 Maturity (or time vector) 0 Payoff function max(s.5-k,0) Constants k (or k1) 100 k2 110 k3 150 Knock-out function Control variate function Exact value for control variate Random number seed 5667 Number of simulation trials 30 SV simulation Price #NAME? Std error #NAME? RSQ #NAME? CPU sec #NAME?
0.1
0.2
0.3
0.4
The sim_sv payoff function can t which refers to the stock price at time variable t can also be used.
SV formula #NAME?
0.5
e sim_sv payoff function can take the variables s.j, hich refers to the stock price at time index j. The me variable t can also be used.
Exact Simulation: SVJ Model Stock price 100 Initial volatility 20.0% Speed of mean reversion 6.0 Long-run mean volatility 20.0% Volatility of variance 0.1 Correlation -50.0% Arrival rate of jumps 100.0% Mean proportional jump in return size 10.0% Volatility of proportional jump in return size 10.0% Dividend rate 0.0% Interest rate 3.0% Number of time steps 1 Maturity (or time vector) 0.5 Payoff function max(s-k,0) Constants k (or k1) 90 k2 110 k3 150 Knock-out function Control variate function Exact value for control variate Random number seed 12356 Number of simulation trials 20 SVJ simulation #NAME? #NAME? #NAME? #NAME?
Price Std error RSQ CPU sec
The sim_svj payoff function ca variables s.j, which refers to th time index j. The time variabl used.
SVJ formula #NAME?
e sim_svj payoff function can take the riables s.j, which refers to the stock price at me index j. The time variable t can also be
Euler Simulation: SVJ Model Stock price 100 Initial volatility 20.00% Speed of mean reversion 6.0 Long-run mean volatility 20.0% Volatility of variance 0.1 Correlation -50.0% Arrival rate of jumps 100.0% Mean proportional jump in return size 10.0% Volatility of proportional jump in return size 10.0% Dividend rate 0.0% Interest rate 3.0% Number of time steps 5 Maturity (or time vector) 0 Payoff function max(s-k,0) Constants k (or k1) 90 k2 110 k3 150 Knock-out function Control variate function Exact value for control variate Random number seed 5667 Number of simulation trials 20 SVJ simulation #NAME? #NAME? #NAME? #NAME?
Price Std error RSQ CPU sec
0.1
0.2
0.3
0.4
The sim_svj payoff function can tak variables s.j, which refers to the sto time index j. The time variable t ca used.
SVJ formula #NAME?
0.5
m_svj payoff function can take the s s.j, which refers to the stock price at ex j. The time variable t can also be
Exact Simulation of a Path: Multiple Asset Multiple Time-Step Black-Scholes Model Random number seed 5667
Stock 1 Stock 2 Stock 3
Stock Dividend price Volatility rate 500 25.0% 0.0% 100 10.0% 0.0% 200 30.0% 0.0%
Interest rate Correlation matrix 5.0% 100.0% 50.0% 50.0% 100.0% -50.0% -25.0%
-50.0% -25.0% 100.0%
Time 0.00 1.00 1.25 1.50 1.75 2.00
Stock 1 #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
Simulated Prices Stock 2 Stock 3 #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
Set random seed function #NAME?
generate_path_sim_k_asset is for use with a simulation add-in, e.g., Crystal Ball or @RISK. The recalculate key, F9, generates a new sample path each time it is hit. To use the function, add a cell with a discounted payoff, run the simulation, and keep track of the average. The paths are generated with time running horizontally. To get paths running with time moving vertically, use the transpose function in Excel, e.g., transpose(generate_path_sim_k_asset(...)) will do the trick.
Exact Simulation of a Path: Single Asset Multiple Time-Step Black-Scholes Model Set Random random Stock Dividend Interest number seed price Volatility rate rate seed function 100 10.0% 0.0% 5.0% 5667 #NAME? Time step 0 1 2 3 4 5 Time 0 0.1 0.2 0.3 0.4 0.5 Stock #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? Simulated Stock Time Price 0.0 #NAME? 0.1 #NAME? 0.2 #NAME? 0.3 #NAME? 0.4 #NAME? 0.5 #NAME?
generate_path_sim_1ass simulation add The recalculate key, F9, sample path each time it function, add a cell with a run the simulation, and k average.
The paths are generated vertically. To get paths r moving horizontally, use in Excel, e.g., transpose(generate_path will do the trick.
generate_path_sim_1asset is for use with a simulation add-in, e.g., Crystal Ball or @RISK. The recalculate key, F9, generates a new sample path each time it is hit. To use the function, add a cell with a discounted payoff, run the simulation, and keep track of the average. The paths are generated with time running vertically. To get paths running with time moving horizontally, use the transpose function in Excel, e.g., transpose(generate_path_sim_1asset(...)) will do the trick.
Exact Simulation of a Path: Merton Jump-Diffusion Model Stock price 100 Volatility 15.0% Arrival rate of jumps in returns 10.0% Mean proportional jump in return size -60.0% Volatility of proportional jump in return size 40.0% Dividend rate 2.0% Interest rate 5.0% Random number seed 5667 Set seed function #NAME? Simulated Stock Time Price 0.00 #NAME? 1.00 #NAME? 1.25 #NAME? 1.50 #NAME? 1.75 #NAME? 2.00 #NAME?
Option type Merton formula
Check of Merton formula and simulation Option type c PV(payoff) Strike 100 #NAME? Merton formula #NAME?
generate_path_sim_merton is for use with a simulation add-in, e.g., Crystal Ball or @RISK. The recalculate key, F9, generates a new sample path each time it is hit. To use the function, add a cell with a discounted payoff (e.g., cell D15), run the simulation, and keep track of the average. The paths are generated with time running vertically. To get paths running with time moving horizontally, use the transpose function in Excel, e.g., transpose(generate_path_sim_merton(...)) will accomplish the result.
Exact Simulation of a Path: SV Model Stock price 100 Initial volatility 10.0% Speed of mean reversion 2.0 Long-run mean volatility 10.0% Volatility of variance 0.1 Correlation 70.0% Dividend rate 0.0% Interest rate 0.0% Random number seed 5667 Set seed function #NAME?
Check of SV formula and simu Option type c Strike 100 SV formula #NAME?
Time Stock price 0.0 #NAME? 0.1 #NAME? 0.2 #NAME? 0.3 #NAME? 0.4 #NAME? 0.5 #NAME?
Volatility #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
Check of SV formula and simulation: PV(payoff) #NAME?
Euler Simulation of a Path: SV Model Stock price 100 Initial volatility 10.0% Speed of mean reversion 2.0 Long-run mean volatility 10.0% Volatility of variance 0.1 Correlation 70.0% Dividend rate 0.0% Interest rate 0.0% Random number seed 5667 Set seed function #NAME?
Check of SV formula and simu Option type c Strike 100 SV formula #NAME?
Check of SV formula and simulation PV(payoff) #NAME?
Exact Simulation of a Path: SVJ Model Stock price 100 Initial volatility 10.0% Speed of mean reversion 2.0 Long-run mean volatility 10.0% Volatility of variance 0.1 Correlation 50.0% Arrival rate of jumps in returns 10.0% Mean proportional jump in return size -20.0% Volatility of proportional jump in return size 10.0% Dividend rate 0.0% Interest rate 0.0% Random number seed 125 Set seed function #NAME?
Option type Strike SVJ formula
Check of SVJ formula and simulation c PV(payoff) 100 #NAME? #NAME?
Euler Simulation of a Path: SVJ Model Stock price 100 Initial volatility 10.0% Speed of mean reversion 2.0 Long-run mean volatility 10.0% Volatility of variance 0.1 Correlation 50.0% Arrival rate of jumps in returns 10.0% Mean proportional jump in return size -20.0% Volatility of proportional jump in return size 10.0% Dividend rate 0.0% Interest rate 0.0% Random number seed 5667 Set seed function #NAME?
Check of SVJ formula an Option type c Strike 100 SVJ formula #NAME?
Check of SVJ formula and simulation PV(payoff) #NAME?
Exact Simulation of a Path: Merton Jump-Diffusion Model Stock price 100 Volatility 15.0% Arrival rate of jumps in returns 10.0% Mean proportional jump in return size -40.0% Volatility of proportional jump in return size 20.0% Dividend rate 1.0% Interest rate 3.0% Random number seed 5667 Set seed function #NAME? Maturity Time steps dt 1 100 0.01
150 130
Simulated Stock Time Price 0.00 #NAME? 0.01 #NAME? 0.02 #NAME? 0.03 #NAME? 0.04 #NAME? 0.05 #NAME? 0.06 #NAME? 0.07 #NAME? 0.08 #NAME? 0.09 #NAME? 0.10 #NAME? 0.11 #NAME? 0.12 #NAME? 0.13 #NAME? 0.14 #NAME? 0.15 #NAME? 0.16 #NAME? 0.17 #NAME? 0.18 #NAME? 0.19 #NAME? 0.20 #NAME? 0.21 #NAME? 0.22 #NAME? 0.23 #NAME? 0.24 #NAME? 0.25 #NAME? 0.26 #NAME? 0.27 #NAME? 0.28 #NAME? 0.29 #NAME? 0.30 #NAME? 0.31 #NAME? 0.32 #NAME? 0.33 #NAME? 0.34 #NAME? 0.35 #NAME?
110 90 70 50 30 0.0 0.2
0.36 0.37 0.38 0.39 0.40 0.41 0.42 0.43 0.44 0.45 0.46 0.47 0.48 0.49 0.50 0.51 0.52 0.53 0.54 0.55 0.56 0.57 0.58 0.59 0.60 0.61 0.62 0.63 0.64 0.65 0.66 0.67 0.68 0.69 0.70 0.71 0.72 0.73 0.74 0.75 0.76 0.77 0.78 0.79 0.80 0.81 0.82 0.83 0.84 0.85 0.86 0.87
#NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
0.88 0.89 0.90 0.91 0.92 0.93 0.94 0.95 0.96 0.97 0.98 0.99 1.00
#NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
Stock Price vs Time
0.2
0.4
0.6
0.8
1.0
Euler Simulation of a Path: SV Model Stock price 100 Initial volatility 20.0% Speed of mean reversion 3.0 Long-run mean volatility 20.0% Volatility of variance 0.2 Correlation -50.0% Dividend rate 1.0% Interest rate 3.0% Random number seed 5667 Set seed function #NAME?
Maturity Time steps dt
1 100 0.01
150 130
Stock Price
110 90 70 50 30
Time Stock price 0.00 #NAME? 0.01 #NAME? 0.02 #NAME? 0.03 #NAME? 0.04 #NAME? 0.05 #NAME? 0.06 #NAME? 0.07 #NAME? 0.08 #NAME? 0.09 #NAME? 0.10 #NAME? 0.11 #NAME? 0.12 #NAME? 0.13 #NAME? 0.14 #NAME? 0.15 #NAME? 0.16 #NAME? 0.17 #NAME? 0.18 #NAME? 0.19 #NAME? 0.20 #NAME? 0.21 #NAME? 0.22 #NAME? 0.23 #NAME? 0.24 #NAME? 0.25 #NAME? 0.26 #NAME? 0.27 #NAME? 0.28 #NAME? 0.29 #NAME? 0.30 #NAME? 0.31 #NAME? 0.32 #NAME? 0.33 #NAME? 0.34 #NAME? 0.35 #NAME? 0.36 #NAME?
Volatility #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
Change in Return variance #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
0.37 0.38 0.39 0.40 0.41 0.42 0.43 0.44 0.45 0.46 0.47 0.48 0.49 0.50 0.51 0.52 0.53 0.54 0.55 0.56 0.57 0.58 0.59 0.60 0.61 0.62 0.63 0.64 0.65 0.66 0.67 0.68 0.69 0.70 0.71 0.72 0.73 0.74 0.75 0.76 0.77 0.78 0.79 0.80 0.81 0.82 0.83 0.84 0.85 0.86 0.87 0.88
0.89 0.90 0.91 0.92 0.93 0.94 0.95 0.96 0.97 0.98 0.99 1.00
#NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
Stock Price and Volatility vs Time

150 130 110 90 70 50 30 0.0 0.2 0.4
Time
30% 25% 20% 15% 10% 0.6 0.8

Stock Price
1.0
Volatility
Change in Variance vs Return

0.8% 0.6%
Change in variance
0.4% 0.2% 0.0% -0.2% -0.4% -0.6% -0.8% -8% -4% 0% 4% 8%
Return
Volatility
Volatility
Euler Simulation of a Path: SVJ Model Stock price 100 Initial volatility 20.0% Speed of mean reversion 20.0 Long-run mean volatility 15.0% Volatility of variance 0.2 Correlation -50.0% Arrival rate of jumps in returns 165.0% Mean proportional jump in return size -5.0% Volatility of proportional jump in return size 4.0% Dividend rate 1.0% Interest rate 3.0% Random number seed 5667 Set seed function #NAME?
150 130
Stock Price
#NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
Maturity Time steps dt
1 100 0.01
110 90 70 50 30
Time Stock price 0.00 #NAME? 0.01 #NAME? 0.02 #NAME? 0.03 #NAME? 0.04 #NAME? 0.05 #NAME? 0.06 #NAME? 0.07 #NAME? 0.08 #NAME? 0.09 #NAME? 0.10 #NAME? 0.11 #NAME? 0.12 #NAME? 0.13 #NAME? 0.14 #NAME? 0.15 #NAME? 0.16 #NAME? 0.17 #NAME? 0.18 #NAME? 0.19 #NAME? 0.20 #NAME? 0.21 #NAME? 0.22 #NAME? 0.23 #NAME? 0.24 #NAME? 0.25 #NAME? 0.26 #NAME? 0.27 #NAME? 0.28 #NAME? 0.29 #NAME? 0.30 #NAME? 0.31 #NAME? 0.32 #NAME?
Volatility #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
Change in Return variance #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
0.33 0.34 0.35 0.36 0.37 0.38 0.39 0.40 0.41 0.42 0.43 0.44 0.45 0.46 0.47 0.48 0.49 0.50 0.51 0.52 0.53 0.54 0.55 0.56 0.57 0.58 0.59 0.60 0.61 0.62 0.63 0.64 0.65 0.66 0.67 0.68 0.69 0.70 0.71 0.72 0.73 0.74 0.75 0.76 0.77 0.78 0.79 0.80 0.81 0.82 0.83 0.84
0.85 0.86 0.87 0.88 0.89 0.90 0.91 0.92 0.93 0.94 0.95 0.96 0.97 0.98 0.99 1.00
#NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
150 130
Stock Price and Volatility vs Time
30%
25%
90 70
20%
15%
Change in
50 30 0.0 0.2 0.4 0.6 0.8

Stock Price
10% 1.0
Volatility
Time
Change in Variance vs Return

0.8% 0.6% 0.4% Change in variance 0.2% 0.0% -0.2% -0.4% -0.6% -0.8% -8%
-4%
0% Return
4%
8%
Volatility
110
Volatility
Volatility
PCA example Covariance matrix 0.1560 0.1579 0.1579 0.1736 0.1625 0.1794 0.1640 0.1806 0.1615 0.1791 0.1526 0.1734 0.1454 0.1677 0.1387 0.1584 0.1245 0.1466
0.1625 0.1794 0.1884 0.1919 0.1911 0.1849 0.1793 0.1715 0.1556
0.1640 0.1806 0.1919 0.1970 0.1969 0.1905 0.1853 0.1788 0.1601
0.1615 0.1791 0.1911 0.1969 0.1974 0.1920 0.1875 0.1814 0.1626
0.1526 0.1734 0.1849 0.1905 0.1920 0.1897 0.1872 0.1809 0.1651
Principal components #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? Fraction explained #NAME? #NAME? #NAME? Cumulative fraction explained #NAME? #NAME? #NAME?
#NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
0.1454 0.1677 0.1793 0.1853 0.1875 0.1872 0.1869 0.1823 0.1672
0.1387 0.1584 0.1715 0.1788 0.1814 0.1809 0.1823 0.1836 0.1658
0.1245 0.1466 0.1556 0.1601 0.1626 0.1651 0.1672 0.1658 0.1597
BS Implied volatility in the Merton model Stock price Volatility Arrival rate of jumps in returns Mean proportional jump in return size Volatility of proportional jump in return size Dividend rate Interest rate Option maturity Strike 100 18.0% 30.0% -20.0% 30.0% 0.0% 3.0% 1.0 100 Option type c p
Merton #NAME? #NAME?
45%
BS Implied Volatility 40% 35% 30% 25% 20% 15% 85 95 Strike
30-day 60-day 180-day
105
115
Put Option Price Strike 85.0 87.5 90.0 92.5 95.0 97.5 100.0 102.5 105.0 107.5 110.0 112.5 115.0
30 0.082 #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?
Implied Volatility Strike 85.0 #NAME? 87.5 #NAME? 90.0 #NAME? 92.5 #NAME? 95.0 #NAME? 97.5 #NAME? 100.0 #NAME? 102.5 #NAME? 105.0 #NAME? 107.5 #NAME? 110.0 #NAME? 112.5 #NAME? 115.0 #NAME?
BS Implied volatility in the SV model Put Option Price Stock price Initial volatility Speed of mean reversion Long-run mean volatility Volatility of variance Correlation Dividend rate Interest rate Option maturity Strike 100 23.0% 4.0 23.0% 0.8 -60.0% 0.0% 3.0% 0.25 110 Option type c p
SV #NAME? #NAME?
45% BS Implied Volatility 40% 35% 30% 25%
20%
15% 85 95 Strike
105
115
BS Implied volatility in the SVJ model Stock price Initial volatility Speed of mean reversion Long-run mean volatility Volatility of variance Correlation Arrival rate of jumps in returns Mean proportional jump in return size Volatility of proportional jump in return size Dividend rate Interest rate Option maturity Strike 100 23.0% 3.0 23.0% 0.2 -50.0% 150.0% -6.0% 3.0% 0.0% 3.0% 0.5 110 Option type c p
SVJ #NAME? #NAME?
45% BS Implied Volatility 40% 35% 30% 25% 20%
15%
85 95 Strike
105
115

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Barrier #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?

Barrier level 120 120 80 80 120 120 80 80

Rebate Barrier Option Type

Price Delta Gamma Vega Theta

Barrier #NAME? #NAME? #NAME? #NAME? #NAME?

SVJ price #NAME?

Standard American binomial lattice Price #NAME? Price #NAME?

Implied volatility Implied volatility

Standard American binomial lattice #NAME? #NAME?

Price Delta1 Delta2 CPU sec

Stock price Volatility Correlation matrix

Exact Simulation: Single Asset Multiple Time-Step Black-Scholes Model

The sim_1asset function is but with one asset (so no c

Exact Simulation: Merton Jump-Diffusion Model

Merton formula #NAME?

Option Error type Sim - formula c #NAME?

Option Error type Sim - formula c #NAME?

Option Error type Sim - formula c #NAME?

Price Std error RSQ CPU sec

SVJ formula #NAME?

Option Error type Sim - formula c #NAME?

Price Std error RSQ CPU sec

SVJ formula #NAME?

Option Error type Sim - formula c #NAME?

Stock 1 Stock 2 Stock 3

-50.0% -25.0% 100.0%

Time 0.00 1.00 1.25 1.50 1.75 2.00

Stock 1 #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?

Set random seed function #NAME?

Option type Merton formula

Volatility #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?

Check of SV formula and simulation: PV(payoff) #NAME?

Volatility #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?

Check of SV formula and simulation PV(payoff) #NAME?

Option type Strike SVJ formula

Volatility #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?

Check of SVJ formula and simulation c PV(payoff) 100 #NAME? #NAME?

Volatility #NAME? #NAME? #NAME? #NAME? #NAME? #NAME?

Check of SVJ formula and simulation PV(payoff) #NAME?

110 90 70 50 30 0.0 0.2

Stock Price vs Time

Maturity Time steps dt

Stock Price and Volatility vs Time

30% 25% 20% 15% 10% 0.6 0.8

Change in Variance vs Return

0.4% 0.2% 0.0% -0.2% -0.4% -0.6% -0.8% -8% -4% 0% 4% 8%

Maturity Time steps dt

Stock Price and Volatility vs Time

50 30 0.0 0.2 0.4 0.6 0.8

Change in Variance vs Return

0.1625 0.1794 0.1884 0.1919 0.1911 0.1849 0.1793 0.1715 0.1556

0.1640 0.1806 0.1919 0.1970 0.1969 0.1905 0.1853 0.1788 0.1601

0.1615 0.1791 0.1911 0.1969 0.1974 0.1920 0.1875 0.1814 0.1626

0.1526 0.1734 0.1849 0.1905 0.1920 0.1897 0.1872 0.1809 0.1651

0.1454 0.1677 0.1793 0.1853 0.1875 0.1872 0.1869 0.1823 0.1672

0.1387 0.1584 0.1715 0.1788 0.1814 0.1809 0.1823 0.1836 0.1658

0.1245 0.1466 0.1556 0.1601 0.1626 0.1651 0.1672 0.1658 0.1597

Merton #NAME? #NAME?

45% BS Implied Volatility 40% 35% 30% 25%

SVJ #NAME? #NAME?

45% BS Implied Volatility 40% 35% 30% 25% 20%

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