DerivaGem - Version 1.

53
For Excel 2000 and more recent versions of Excel

This is the Applications Builder Software that has been designed to

accompany John Hull's texts:

"Options, Futures and Other Derivatives" 7/E

"Fundamentals of Futures and Options Markets" 6/E
and

"Risk Management and Financial Institutions" 2/E

All books are published by Pearson Prentice Hall. They can be ordered from outlets such as
Amazon.com or directly from the publisher at http://www.prenhall.com/mischtm/support_fr.html
Note: You should familiarize yourself with the Options Calculator Software in DG153.xls
before using this software
Important: Do not forget to enable Macros. If you are using Office 2007 you will have to
click on the Options button and choose "Enable this Content"
This software was developed for educational purposes by A-J Financial Systems, Inc.

en designed to

s" 7/E
kets" 6/E

ons" 2/E

from outlets such as

ischtm/support_fr.html

ware in DG153.xls

07 you will have to

tent"

ystems, Inc.

THE DERIVAGEM APPLICATIONS BUILDER CONTAINS 21 FUNCTIONS FROM WHICH USERS CAN BUILD THEIR OWN APPLICATIONS
SPREADSHEETS WITH 7 SAMPLE APPLICATIONS ARE INCLUDED
Function 1: Black_Scholes(S,K,r,q,vol,T,IsCall,IsFut,Divs,Result)
Carries out Black-Scholes calculations for European options on stocks, stock indices,currencies and futures
Arguments:
S
Asset Price
K
Strike price
r
Domestic risk-free rate
q
Dividend yield for stock index options, foreign risk free rate for currency options (Enter 0 if this parameter not applicable)
vol
Volatility. BUT Enter Price if Implied Volatility is to be calculated (i.e. Result=6)
T
Time to maturity (yrs)
IsCall
TRUE if call, FALSE if put
IsFut
TRUE if futures option, FALSE otherwise
Divs
Array containing time to dividend payment and size of dividend payment in cols 1 and 2. (Leave blank if not applicable)
Result
0=Price; 1=Delta; 2=Gamma; 3=Vega; 4=Theta; 5=Rho; 6=Implied Vol

Example:

7.831613

Dividends
0.5
1
0.75
1

Function 2: TreeEquityOpt(S,K,r,q,vol,T,IsCall,IsFut,Divs,IsAmerican,nSteps,Result)
Carries out binomial tree calculations for European or American options on stocks, stock indices, currencies, and futures
Arguments:
S
Asset Price
K
Strike price
r
Domestic risk-free rate
q
Dividend yield for stock index options, foreign risk free rate for currency options (Enter 0 if this parameter not applicable)
vol
Volatility. BUT Enter Price if Implied Volatility is to be calculated (i.e. Result=6)
T
Time to maturity (yrs)
IsCall
TRUE if call, FALSE if put
IsFut
TRUE if futures option, FALSE otherwise
Divs
Array containing time to dividend payment and size of dividend payment in cols 1 and 2. (Leave blank if not applicable)
IsAmerican
TRUE if American option, FALSE if European option
nSteps
Number of time steps on tree
Result
0=Price; 1=Delta; 2=Gamma; 3=Vega; 4=Theta; 5=Rho; 6=Implied Vol
Example

0.296717

Function 3: BinaryOption(S,K,r,q,vol,T,IsCall,IsFut,Divs,IsCash,Result)
Carries out calculations for binary options on stocks, stock indices,currencies and futures
Arguments:
S
Asset Price
K
Strike price
r
Domestic risk-free rate
q
Dividend yield for stock index options, foreign risk free rate for currency options (Enter 0 if this parameter not applicable)
vol
Volatility. BUT Enter Price if Implied Volatility is to be calculated (i.e. Result=6)
T
Time to maturity (yrs)
IsCall
TRUE if call, FALSE if put
IsFut
TRUE if futures option, FALSE otherwise
Divs
Array containing time to dividend payment and size of dividend payment in cols 1 and 2. (Leave blank if not applicable)
IsCash
TRUE if Cash or Nothing, FALSE if Asset or Nothing
Result
0=Price; 1=Delta; 2=Gamma; 3=Vega; 4=Theta; 5=Rho; 6=Implied Vol
Example

0.00141

(Delta of Cash or Nothing Call)

Function 4: BarrierOption(S,K,r,q,vol,T,IsCall,IsFut,H,IsUp,IsIn,Result)
Carries out calculations for barrier options on non-dividend-paying stocks, stock indices, currencies and futures
Arguments:
S
Asset Price
K
Strike price
r
Domestic risk-free rate
q
Dividend yield for stock index options, foreign risk free rate for currency options (Enter 0 if this parameter not applicable)
vol
Volatility. BUT Enter Price if Implied Volatility is to be calculated (i.e. Result=6)
T
Time to maturity (yrs)
IsCall
TRUE if call, FALSE if put
IsFut
TRUE if futures option, FALSE otherwise
H
Barrier
IsUp
TRUE if Up option; FALSE if Down option
IsIn
TRUE if In option; FALSE if Out option
Result
0=Price; 1=Delta; 2=Gamma; 3=Vega; 4=Theta; 5=Rho; 6=Implied Vol
Example

3.363929

(Price of down and out call option)

Function 5: AverageOption(S,K,r,q,vol,T,IsCall,IsFut,CurrAve,TimeSoFar,Result)
Carries out calculations for Asian options on non-dividend-paying stocks, stock indices,currencies and futures
Arguments:
S
Asset Price
K
Strike price
r
Domestic risk-free rate
q
Dividend yield for stock index options, foreign risk free rate for currency options (Enter 0 if this parameter not applicable)
vol
Volatility. BUT Enter Price if Implied Volatility is to be calculated (i.e. Result=6)
T
Time to maturity (yrs)
IsCall
TRUE if call, FALSE if put
IsFut
TRUE if futures option, FALSE otherwise

CurrAve
TimeSoFar
Result
Example

Current Average (irrelevant if a new instrument)

Time since beginning of averaging in years (zero for a new instrument)
0=Price; 1=Delta; 2=Gamma; 3=Vega; 4=Theta; 5=Rho; 6=Implied Vol
0.45291

Function 6: ChooserOption(S,K,r,q,vol,T,IsFut,TimeToChoice,Result)
Carries out calculations for chooser options on non-dividend-paying stocks, stock indices,currencies and futures
Arguments:
S
Asset Price
K
Strike price
r
Domestic risk-free rate
q
Dividend yield for stock index options, foreign risk free rate for currency options (Enter 0 if this parameter not applicable)
vol
Volatility. BUT Enter Price if Implied Volatility is to be calculated (i.e. Result=6)
T
Time to maturity (yrs)
IsFut
TRUE if futures option, FALSE otherwise
TimeToChoice
Time until choice between call and put has to be made
Result
0=Price; 1=Delta; 2=Gamma; 3=Vega; 4=Theta; 5=Rho; 6=Implied Vol
Example

0.523544

Function 7: CompoundOption(S,K1,r,q,vol,T1,IsCall,IsFut,K2,T2,IsOptionOnCall,Result)
Carries out calculations for compound options on non-dividend-paying stocks, stock indices,currencies and futures
Arguments:
S
Asset Price
K1
First Strike Price
r
Domestic risk-free rate
q
Dividend yield for stock index options, foreign risk free rate for currency options (Enter 0 if this parameter not applicable)
vol
Volatility. BUT Enter Price if Implied Volatility is to be calculated (i.e. Result=6)
T1
Time to first exercise
IsCall
True if first option a call, FALSE if first option a put
IsFut
TRUE if futures option, FALSE otherwise
K2
Second strike price
T2
Time to second exercise
IsOptionOnCall
TRUE if second option is a call, FALSE if second option is a put
Result
0=Price; 1=Delta; 2=Gamma; 3=Vega; 4=Theta; 5=Rho; 6=Implied Vol
Example

1.509561

Function 8: LookbackOption(S,r,q,vol,T,IsCall,IsFut,IsFixedLookback,Smax,Smin,K,Result)
Carries out calculations for lookback options on non-dividend-paying stocks, stock indices,currencies and futures
Arguments:
S
Asset Price
r
Domestic risk-free rate
q
Dividend yield for stock index options, foreign risk free rate for currency options (Enter 0 if this parameter not applicable)
vol
Volatility. BUT Enter Price if Implied Volatility is to be calculated (i.e. Result=6)
T
Time to maturity (yrs)
IsCall
TRUE if lookback call, FALSE if lookback put
IsFut
TRUE if futures option, FALSE otherwise
IsFixedLookback
TRUE for fixed lookback
Smax
Maximum price to date (equals to current price if a new instrument)
Smin
Minimum price to date (equals current price if a new instrument)
K
Strike price for Fixed Lookback; Ignored otherwise
Result
0=Price; 1=Delta; 2=Gamma; 3=Vega; 4=Theta; 5=Rho; 6=Implied Vol
Example

9.958486

Function 9: EPortfolio(t,S,IsFut,r,q,Divs,vol,Portfolio,Result)
Carries out calculations for a portfolio of options on a non-dividend-paying stock, stock index, currency, or futures
Arguments:
t
Valuation date (years from today >=0)
S
Asset price
IsFut
TRUE if underlying is a futures price; FALSE otherwise
r
Domestic risk-free rate
q
Dividend yield for stock index options, foreign risk free rate for currency options (Enter 0 if this parameter not applicable)
Divs
Array containing time to dividend payment and size of dividend payment in cols 1 and 2. (Leave blank if not applicable)
vol
Volatility
Portfolio
Array defining portfolio. See below
Result
0=Price; 1=Delta; 2=Gamma; 3=Vega; 4=Theta; 5=Rho
Portfolio definition:
Underlying
Black Scholes
TreeEquityOption
Binaryoption
BarrierOption
AverageOption
ChooserOption
CompoundOption
LookBackOption

Type
0
1
2
3
4
5
6
7
8

Number
Number
Number
Number
Number
Number
Number
Number
Number

Type

Number

Sample Portfolio

K
K
K
K
K
K
K1
K

T
T
T
T
T
T
T1
T

IsCall
IsCall
nSteps
IsCall
IsCash
IsCall
Barrier
IsCall
CurrAve
TimeToChoice
IsCall
K2
IsCall
IsFixedLookback

IsAmerican
IsUp
TimeSoFar

IsIn

T2
Smax

IsOptOnCall
Smin

Underlying
Black Scholes
Black Scholes
TreeEquityOption
Example of Function:

0
1
1
2

100
50
50
100

55
48
50

0.5
0.75
0.5

TRUE
TRUE
FALSE

25

TRUE

5845.485

Function 10: BlackCap(Start,End,CapRate,L,Frequ,vol,IsCap,Zeros,Result)

Carries out calculations for caps and floors using Black's model
Arguments:
Start
Time (years from today) when cap starts
End
Time (years from today) when cap ends
CapRate
Cap Rate
L
Notional amount
Frequ
Number of times a year cap is settled (= 12, 4, 2, or 1)
vol
Flat volatility. BUT enter price if implied volatility is to be calculated (i.e. Result=4)
IsCap
TRUE if cap, FALSE if Floor
Zeros
Array containing zero curve: Maturities in the first column and corresponding zero rates in second column
Result
0=Price, 1=Delta, 2=Gamma, 3=Vega, 4=ImpliedVol
Example

3.257522

Function 11: HullWhiteCap(Start,End,CapRate,L,Frequ,sigma,a,IsCap,Zeros,Result)

Carries out calculations for caps and floors using Hull-White model
Arguments:
Start
Time (years from today) when cap starts
End
Time (years from today) when cap ends
CapRate
Cap Rate
L
Notional amount
Frequ
Number of times a year cap is settled (= 12, 4, 2, or 1)
sigma
Short rate standard deviation. But enter price if implied sigma is to be calculated (i.e.Result=4)
a
Reversion rate
IsCap
TRUE if cap, FALSE if floor
Zeros
Array containing zero curve: Maturities in the first column and corresponding zero rates in second column
Result
0=Price, 1=Delta, 2=Gamma, 3=Vega, 4=ImpliedVol
Example

3.230512

Function 12: TreeCap(Start,End,CapRate,L,Frequ,sigma,a,IsCap,Model,nsteps,Zeros,Result)

Carries out calculations for caps and floors usng a trinomial tree
Arguments:
Start
Time (years from today) when cap starts
End
Time (years from today) when cap ends
CapRate
Cap Rate
L
Notional Amount
Frequ
Number of times a year cap is settled (= 12, 4, 2, or 1)
sigma
Volatility parameter
a
Reversion rate
IsCap
TRUE if cap, FALSE if floor
Model
0=Normal, 1=Lognormal
nSteps
Number of time steps
Zeros
Array containing zero curve: Maturities in the first column and corresponding zero rates in second column
Result
0=Price, 1=Delta, 2=Gamma, 3=Vega, 4=Implied sigma
Example

3.239323

Function 13: BlackSwapOpt(Start,End,SwapRate,L,Frequ,vol,IsPayFix,Zeros,Result)

Carries out calculations for swap options usng Black's model
Arguments:
Start
Time (years from today) when option matures
End
Time (years from today) when underlying swap ends
SwapRate
Strike Swap Rate
L
Principal amount
Frequ
Frequency of payments on swap (= 12, 4, 2, or 1)
vol
Volatility. BUT enter price if implied volatility is to be calculated (i.e. Result=4)
IsPayFix
TRUE if option to pay strike swap rate, FALSE if option to receive strike swap rate
Zeros
Array containing zero curve: Maturities in the first column and corresponding zero rates in second column
Result
0=Price, 1=Delta, 2=Gamma, 3=Vega, 4=Implied Volatility
Example

3.074156

Function 14: HullWhiteSwapOpt(Start,End,SwapRate,L,Frequ,sigma,a,IsPayFix,Zeros,Result)

Carries out calculations for swap options using the Hull-White model
Arguments:
Start
Time (years from today) when option matures
End
Time (years from today) when underlying swap ends
SwapRate
Strike Swap Rate
L
Principal amount
Frequ
Frequency of payments on swap (= 12, 4, 2, or 1)
sigma
Short rate standard deviation. But enter price if implied sigma is to be calculated (i.e.Result=4)
a
Reversion rate
IsPayFix
TRUE if option to pay strike swap rate, FALSE if option to receive strike swap rate
Zeros
Array containing zero curve: Maturities in the first column and corresponding zero rates in second column

Term Structure
0
3.000%
0.5
3.353%
1
3.664%
1.5
3.938%
2
4.180%
2.5
4.394%
3
4.583%
3.5
4.749%
4
4.896%
4.5
5.026%
5
5.140%
5.5
5.241%
6
5.331%
6.5
5.409%
7
5.479%
7.5
5.540%
8
5.594%
8.5
5.642%
9
5.684%
9.5
5.721%
10
5.754%

Result
Example

0=Price, 1=Delta, 2=Gamma, 3=Vega, 4=Implied sigma

3.929148

Function 15: TreeSwapOpt(Start,End,SwapRate,L,Frequ,sigma,a,IsPayFix,Model,nSteps,Zeros,Result)

Carries out calculations for swap options using a trinomial tree
Arguments:
Start
Time (years from today) when option matures
End
Time (years from today) when underlying swap ends
SwapRate
Strike Swap Rate
L
Principal amount
Frequ
Frequency of payments on swap (= 12, 4, 2, or 1)
sigma
Volatility parameter
a
Reversion rate
IsPayFix
TRUE if option to pay strike swap rate, FALSE if option to receive strike swap rate
Model
0=Normal, 1=Lognormal
nsteps
Number of time steps
Zeros
Array containing zero curve: Maturities in the first column and corresponding zero rates in second column
Result
0=Price, 1=Delta, 2=Gamma, 3=Vega, 4=Implied sigma
Example

3.940238

Function 16: BlackBondOpt(BondLife,Coupon,Princ,Frequ,K,T,vol,IsCall,IsQuoted,Zeros,Result)

Carries out calculations for bond options usng Black's model
Arguments:
BondLife
Life of bond in years(from today)
Coupon
Coupon (rate per year)
Princ
Bond Principal
Frequ
Frequency of payments on bond (=4, 2, or 1)
K
Strike Price
T
Time (in years) to option maturity
vol
Volatility. BUT enter price if implied volatility is to be calculated (i.e. Result=4)
IsCall
TRUE if call, FALSE if put
IsQuoted
True if strike is a quoted price, false if strike is cash price
Zeros
Array containing zero curve: Maturities in the first column and corresponding zero rates in second column
Result
0=Price, 1=Delta, 2=Gamma, 3=Vega, 4=Implied sigma
Example

3.467523

Function 17: HullWhiteBondOpt(BondLife,Coupon,Princ,Frequ,K,T,sigma,a, IsCall,IsQuoted,Zeros,Result)

Carries out calculations for bond options using Hull-White model
Arguments:
BondLife
Life of bond in years(from today)
Coupon
Coupon (rate per year)
Princ
Bond Principal
Frequ
Frequency of payments on bond (=4, 2, or 1)
K
Strike Price
T
Time (in years) to option maturity
sigma
Short rate standard deviation. But enter price if implied sigma is to be calculated (i.e.Result=4)
a
Reversion rate
IsCall
TRUE if call, FALSE if put
IsQuoted
True if strike is a quoted price, false if strike is cash price
Zeros
Array containing zero curve: Maturities in the first column and corresponding zero rates in second column
Result
0=Price, 1=Delta, 2=Gamma, 3=Vega, 4=Implied sigma
Example

3.242182

Function 18: TreeBondOpt(BondLife,Coupon,Princ,Frequ,K,T,sigma,a, IsCall,IsQuoted,IsAmerican,Model,nSteps,Zeros,Result)

Carries out calculations for bond options usng a trinomial tree
Arguments:
BondLife
Life of bond in years(from today)
Coupon
Coupon (rate per year)
Princ
Bond Principal
Frequ
Frequency of payments on bond per year (=4, 2, or 1)
K
Strike Price
T
Time (in years) to option maturity
sigma
Volatility parameter
a
Reversion rate
IsCall
TRUE if call, FALSE if put
IsQuoted
True if strike is a quoted price, false if strike is cash price
IsAmerican
TRUE if American option, FALSE if European
Model
0=Normal, 1=Lognormal
nSteps
Number of time steps
Zeros
Array containing zero curve: Maturities in the first column and corresponding zero rates in second column
Result
0=Price, 1=Delta, 2=Gamma, 3=Vega, 4=Implied sigma
Example

3.243411

Function 19: BondPrice(BondLife, Coupon, Princ, Frequ, Zeros, IsClean, Result)

Values a bond
Arguments:
BondLife
Life of bond in years(from today)
Coupon
Coupon (rate per year)

Princ
Frequ
Zeros
IsClean
Result
Example

Bond principal
Frequency of payments on bond per year (=12, 4, 2, or 1)
Array containing zero curve: Maturities in the first column and corresponding zero rates in second column
If TRUE result is the clean (quoted) price; if FALSE result is dirty (cash) price
0=Price, 1=Delta, 2=Gamma
99.36848

Function 20: SwapPrice(Start, End, FixedRate,L,Frequ,Zeros,Result)

Values a plain vanilla interest rate swap. Note: ignores cash flows arising from reset dates prior to Start date
Arguments:
Start
Beginning of swap (years from today)
End
End of swap (years from today)
FixedRate
Fixed rate that is exchange for floating (compounding frequency corresponds to Frequ)
L
Notional principal
Frequ
Frequency of payments on swap per year (=12, 4, 2, or 1)
Zeros
Array containing zero curve: Maturities in the first column and corresponding zero rates in second column
Result
0=Price, 1=Delta, 2=Gamma
Example

-1.69295

Function 21: IPortfolio(t,Zeros,Nsigma,Na,LNsigma,LNa, Portfolio,Result)

Carries out calculations for a portfolio of options on a non-dividend-paying stock, stock index, currency, or futures
Arguments:
t
Valuation date (years from today >=0)
Zeros
Array containing zero curve: Maturities in the first column and corresponding zero rates in second column
Nsigma
sigma parameter to be used with normal model
Na
reversion rate parameter to be used with normal model
LNsigma
sigma parameter to be used with lognormal model
LNa
reversion rate parameter to be used with lognormal model
Portfolio
Array defining portfolio. See below
Result
0=Price; 1=Delta; 2=Gamma; 3=Vega
Portfolio definition:
Bond
Swap
Black Cap
HW Cap
Tree Cap
Black Swaption
HW Swaption
Tree Swaption
Black Bond Opt.
HW Bond Opt.
Tree Bond Opt.

Type
0
1
2
3
4
5
6
7
8
9
10

Life
Start
Start
Start
Start
Start
Start
Start
Life
Life
Life

Coupon
End
End
End
End
End
End
End
Coupon
Coupon
Coupon

Princ.
FixedRate
CapRate
CapRate
CapRate
SwapRate
SwapRate
SwapRate
Princ
Princ
Princ

Frequ
L
L
L
L
L
L
L
Frequ
Frequ
Frequ

IsClean
Frequ
Frequ
Frequ
Frequ
Frequ
Frequ
Frequ
K
K
K

IsCap
IsCap
IsCap
IsPayFix
IsPayFix
IsPayFix
T
T
T

Type
0
8
8
10

10.2
10.2
10.2
10.2

6%
6%
6%
6%

100
100
100
100

2
2
2
2

TRUE
102
105
98

0.5
1
5

vol
Model
vol

nSteps

Model
IsCall
IsCall
IsCall

nSteps
IsQuoted
IsQuoted
IsQuoted

Model

TRUE
TRUE
FALSE

TRUE
TRUE
TRUE

15%
14%
1

vol
nSteps IsAmerican

Sample Portfolio
Bond
Black Bond Opt.
Black Bond Opt.
Tree Bond Opt.
Example

107.3133

25

TRUE

CONVERGENCE OF BINOMIAL TREE PRICE OF EUROPE

Figure 19.4 in Options, Futures, and Other Derivatives, 7e (and 16.4 in Fun
Problem 19.30 in Options, Futures and Other Derivatives, 7e (and 1
Stock Price
Strike
r
q
vol
Remaining Life
IsCall
IsFut
Result

50
50.1
5.00%
0%
40%
1
FALSE
FALSE
0

IsAmerican

FALSE

Convergence 1
8.00
Tree

7.50

BS

7.00
6.50
6.00
nSteps
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29

Tree
5.7607
7.2490
6.1736
6.9971
6.3216
6.8894
6.3972
6.8298
6.4430
6.7920
6.4736
6.7659
6.4955
6.7468
6.5120
6.7322
6.5247
6.7206
6.5350
6.7113
6.5433
6.7036
6.5503
6.6972
6.5562
6.6917
6.5612
6.6870

BS
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234

5.50
5.00
2

10

14

18

22

30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50

6.5656
6.6829
6.5694
6.6792
6.5727
6.6760
6.5757
6.6732
6.5784
6.6706
6.5808
6.6683
6.5829
6.6662
6.5849
6.6643
6.5867
6.6626
6.5883
6.6609
6.5898

6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234
6.6234

EE PRICE OF EUROPEAN OPTION TO BLACK-SCHOLES PRICE

es, 7e (and 16.4 in Fundamentals 6e) shows a similar result for an American option
r Derivatives, 7e (and 16.7 in Fundamentals 6e) is based on this application

Convergence 1

22

26
nSteps

30

34

38

42

46

50

PLOTS OF GREEK LETTERS

Maturity
Strike
Int. Rate
Volatility
IsCall
Result

S
10
12
14
16
18
20
22
24
26
28
30
32
34
36
38
40
42
44
46
48
50
52
54
56
58
60
62
64
66
68
70
72
74
76
78
80
82
84
86
88

1
50
5%
25%
FALSE
2

Result
1.23E-09
6.77E-08
1.33E-06
1.28E-05
7.5E-05
0.000302
0.000911
0.002201
0.004452
0.007802
0.012154
0.017173
0.022363
0.027181
0.031154
0.033959
0.035449
0.035643
0.034689
0.032813
0.030274
0.027324
0.024189
0.021049
0.018042
0.015257
0.012748
0.010538
0.008629
0.007005
0.005644
0.004517
0.003593
0.002843
0.002238
0.001754
0.00137
0.001066
0.000827
0.00064

Stock Price
Int. Rate
Volatility
IsCall
Result

50
5%
30%
TRUE
1

0->Price, 1->Delta, 2->Gamma, 3->Vega, 4->Theta, 5->Rho

Plot of price, delta, gamma, vega, theta or rho

vs stock price for Black-Scholes model
0.04
0.035
0.03
0.025
0.02
0.015
0.01
0.005
0
0

20

40

60

80

100

0.005
0.01
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
4.25
4.50
4.75
5.00

90
92
94
96
98
100

0.000494
0.00038
0.000292
0.000224
0.000172
0.000132

0->Price, 1->Delta, 2->Gamma, 3->Vega, 4->Theta, 5->Rho

40
1.0000
1.0000
0.9997
0.9929
0.9795
0.9644
0.9501
0.9372
0.9257
0.9156
0.9068
0.8990
0.8921
0.8860
0.8806
0.8757
0.8714
0.8675
0.8641
0.8609
0.8581
0.8555
0.8460
0.8402
0.8367
0.8349
0.8342
0.8343
0.8349
0.8359
0.8373
0.8389
0.8407
0.8426
0.8446
0.8467
0.8488
0.8510

Strike
50
0.5089
0.5126
0.5282
0.5399
0.5488
0.5563
0.5629
0.5688
0.5743
0.5794
0.5841
0.5886
0.5928
0.5969
0.6008
0.6045
0.6081
0.6115
0.6148
0.6181
0.6212
0.6243
0.6383
0.6509
0.6624
0.6729
0.6826
0.6917
0.7003
0.7083
0.7160
0.7232
0.7301
0.7367
0.7431
0.7491
0.7550
0.7606

60
0.0000
0.0000
0.0041
0.0343
0.0740
0.1117
0.1452
0.1746
0.2005
0.2234
0.2440
0.2625
0.2794
0.2948
0.3091
0.3222
0.3345
0.3460
0.3567
0.3669
0.3764
0.3855
0.4248
0.4568
0.4838
0.5072
0.5278
0.5463
0.5630
0.5783
0.5924
0.6055
0.6177
0.6291
0.6398
0.6500
0.6596
0.6687

Plot of price, delta, gamma, vega, theta or rho

vs time to maturity for Black-Scholes model
1.2000
1.0000
40

0.8000

50

0.6000

60

0.4000
0.2000
0.0000
0

40
50
60

INVESTIGATES THE EFFECTIVENESS OF DELTA HEDGING FOR A W

See Tables 17.2 and 17.3 in Options, Futures, and Other Derivatives, 7e (and Tables 15
Uses Monte Carlo Simulation with the antithetic variable technique so that two trials a
Problem 17.30 in Options, Futures, and Other Derivatives, 7e (and 15.28 in Fundamenta
Hedging a call option - Table 13.2

Push F9 to see a new set of results

Stock Price
50
Int. Rate
5%
Vol
20%
Strike
50
Number of Shares 100,000
T 0.383562
IsCall TRUE

Weekly Hedging
Cum. Cost
Payoff
Tot. Cost
Base Case -238,580
531,931
293,352
Antithetic Case 285,168
0
285,168
Daily Hedging
Cum. Cost
Payoff
Tot. Cost
Base Case -118,712
427,056
308,344
Antithetic Case 304,755
0
304,755

Option Price 294,981

Random Numbers
Uniform
Normal
0.28952
-0.55479
0.28745
-0.56084
0.42624
-0.18595
0.90171
1.29136
0.98661
2.21473
0.65708
0.40451
0.65454
0.39760
0.32801
-0.44540
0.70130
0.52815
0.75854
0.70161
0.83260
0.96450
0.13634
-1.09689
0.68643
0.48574
0.45287
-0.11840
0.38823
-0.28394
0.84887
1.03161
0.16954
-0.95599
0.64629
0.37531
0.47355
-0.06636
0.18565
-0.89405

Week

Stock
Price

0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

0.000
0.019
0.038
0.058
0.077
0.096
0.115
0.134
0.153
0.173
0.192
0.211
0.230
0.249
0.268
0.288
0.307
0.326
0.345
0.364
0.383

50.00
49.27
48.53
48.31
50.10
53.30
53.93
54.56
53.92
54.75
55.86
57.40
55.72
56.50
56.35
55.94
57.60
56.12
56.74
56.67
55.32

Delta
0.586
0.535
0.481
0.460
0.584
0.783
0.819
0.853
0.830
0.875
0.922
0.965
0.936
0.964
0.970
0.973
0.996
0.994
1.000
1.000
1.000

Base Case
Shares
Purchased
Cost
58,580
-5,044
-5,432
-2,116
12,410
19,942
3,570
3,380
-2,263
4,437
4,723
4,273
-2,901
2,823
621
263
2,333
-233
587
48
0

2,929,018
-248,493
-263,626
-102,235
621,742
1,062,932
192,540
184,422
-122,053
242,919
263,816
245,256
-161,652
159,480
34,974
14,715
134,359
-13,060
33,281
2,748
14

Base Case

Random Numbers
Uniform
Normal
0.96019
1.75293

Day

Stock
Price

Delta

Shares
Purchased

Cost

0
1

0.000
0.003

50.00
50.93

0.586
0.643

58,580
5,677

2,929,018
289,110

0.13474
0.26361
0.84562
0.64362
0.32746
0.36560
0.94307
0.80535
0.89545
0.84472
0.24094
0.64778
0.96717
0.32142
0.99995
0.28360
0.96732
0.39014
0.51610
0.42339
0.11998
0.09048
0.32323
0.97175
0.02086
0.20046
0.77893
0.24825
0.60860
0.46735
0.36913
0.97212
0.39732
0.03127
0.36811
0.69853
0.84179
0.42654
0.89604
0.58616
0.05412
0.70304
0.14081
0.98180
0.99020
0.35504
0.48406
0.54136
0.18750
0.95258
0.05825
0.35426

-1.10426
-0.63224
1.01781
0.36814
-0.44694
-0.34352
1.58108
0.86090
1.25605
1.01406
-0.70329
0.37933
1.84067
-0.46373
3.91007
-0.57217
1.84280
-0.27896
0.04037
-0.19322
-1.17511
-1.33778
-0.45868
1.90714
-2.03636
-0.83998
0.76858
-0.67999
0.27568
-0.08194
-0.33416
1.91297
-0.26028
-1.86252
-0.33687
0.52017
1.00185
-0.18520
1.25929
0.21767
-1.60615
0.53315
-1.07668
2.09232
2.33399
-0.37175
-0.03996
0.10387
-0.88714
1.67040
-1.56961
-0.37385

2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53

0.005
0.008
0.011
0.014
0.016
0.019
0.022
0.025
0.027
0.030
0.033
0.036
0.038
0.041
0.044
0.047
0.049
0.052
0.055
0.058
0.060
0.063
0.066
0.068
0.071
0.074
0.077
0.079
0.082
0.085
0.088
0.090
0.093
0.096
0.099
0.101
0.104
0.107
0.110
0.112
0.115
0.118
0.121
0.123
0.126
0.129
0.132
0.134
0.137
0.140
0.142
0.145

50.35
50.02
50.56
50.76
50.53
50.35
51.19
51.66
52.35
52.91
52.53
52.74
53.77
53.52
55.76
55.43
56.51
56.35
56.38
56.27
55.59
54.82
54.56
55.67
54.50
54.03
54.47
54.08
54.25
54.20
54.02
55.12
54.97
53.91
53.73
54.03
54.60
54.50
55.23
55.36
54.44
54.75
54.14
55.34
56.72
56.50
56.48
56.55
56.03
57.02
56.10
55.88

0.607
0.586
0.620
0.632
0.617
0.606
0.658
0.685
0.724
0.753
0.734
0.745
0.795
0.784
0.873
0.862
0.896
0.893
0.894
0.892
0.871
0.844
0.834
0.876
0.833
0.813
0.833
0.817
0.825
0.824
0.816
0.862
0.857
0.813
0.805
0.820
0.846
0.842
0.871
0.877
0.842
0.855
0.830
0.880
0.922
0.917
0.918
0.920
0.907
0.934
0.910
0.905

-3,547
-2,087
3,360
1,209
-1,451
-1,133
5,186
2,741
3,833
2,948
-1,946
1,142
5,016
-1,128
8,868
-1,026
3,404
-385
145
-248
-2,060
-2,694
-957
4,109
-4,248
-1,963
1,960
-1,576
768
-118
-757
4,575
-472
-4,390
-810
1,463
2,567
-346
2,930
549
-3,503
1,365
-2,532
4,952
4,241
-477
34
261
-1,368
2,704
-2,319
-554

-178,593
-104,413
169,889
61,375
-73,319
-57,057
265,480
141,586
200,666
155,992
-102,215
60,256
269,718
-60,393
494,461
-56,898
192,369
-21,702
8,180
-13,957
-114,507
-147,687
-52,207
228,743
-231,515
-106,074
106,755
-85,231
41,669
-6,406
-40,916
252,132
-25,956
-236,674
-43,532
79,055
140,185
-18,854
161,810
30,380
-190,673
74,730
-137,101
274,074
240,528
-26,969
1,943
14,773
-76,624
154,185
-130,085
-30,978

0.80011
0.66668
0.59609
0.59325
0.39881
0.83404
0.22979
0.44055
0.37783
0.72612
0.03741
0.77842
0.14325
0.00151
0.20689
0.57887
0.26102
0.98298
0.57306
0.16745
0.76596
0.62299
0.19118
0.05511
0.83768
0.26460
0.59210
0.36336
0.53579
0.54741
0.50558
0.11318
0.04771
0.69140
0.45046
0.73822
0.60605
0.47000
0.99592
0.81804
0.40885
0.44732
0.34011
0.82572
0.10855
0.32204
0.91772
0.57986
0.44150
0.26555
0.83376
0.45364

0.84203
0.43077
0.24323
0.23592
-0.25643
0.97026
-0.73952
-0.14958
-0.31117
0.60113
-1.78158
0.76687
-1.06582
-2.96540
-0.81726
0.19901
-0.64021
2.11955
0.18418
-0.96430
0.72560
0.31333
-0.87357
-1.59717
0.98497
-0.62923
0.23295
-0.34950
0.08984
0.11912
0.01399
-1.20980
-1.66751
0.49982
-0.12451
0.63787
0.26904
-0.07528
2.64566
0.90794
-0.23052
-0.13243
-0.41216
0.93738
-1.23427
-0.46200
1.38988
0.20153
-0.14717
-0.62631
0.96912
-0.11648

54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105

0.148
0.151
0.153
0.156
0.159
0.162
0.164
0.167
0.170
0.173
0.175
0.178
0.181
0.184
0.186
0.189
0.192
0.195
0.197
0.200
0.203
0.205
0.208
0.211
0.214
0.216
0.219
0.222
0.225
0.227
0.230
0.233
0.236
0.238
0.241
0.244
0.247
0.249
0.252
0.255
0.258
0.260
0.263
0.266
0.268
0.271
0.274
0.277
0.279
0.282
0.285
0.288

56.38
56.64
56.79
56.94
56.79
57.37
56.93
56.85
56.67
57.03
55.98
56.44
55.82
54.12
53.66
53.78
53.42
54.62
54.73
54.19
54.61
54.79
54.30
53.40
53.96
53.61
53.74
53.55
53.61
53.68
53.69
53.02
52.10
52.38
52.32
52.67
52.83
52.79
54.28
54.80
54.67
54.60
54.37
54.91
54.21
53.95
54.75
54.87
54.79
54.43
54.99
54.93

0.920
0.928
0.933
0.937
0.934
0.948
0.940
0.939
0.935
0.944
0.919
0.933
0.916
0.851
0.829
0.836
0.818
0.879
0.885
0.862
0.882
0.891
0.871
0.826
0.857
0.840
0.849
0.840
0.844
0.850
0.852
0.813
0.749
0.772
0.768
0.796
0.808
0.808
0.896
0.920
0.917
0.916
0.908
0.931
0.905
0.895
0.931
0.938
0.937
0.926
0.948
0.948

1,542
768
456
429
-254
1,357
-834
-99
-329
919
-2,548
1,355
-1,635
-6,514
-2,196
727
-1,809
6,058
586
-2,286
2,012
897
-2,005
-4,527
3,168
-1,715
883
-911
457
549
225
-3,871
-6,470
2,283
-352
2,795
1,245
-93
8,830
2,376
-308
-93
-770
2,328
-2,625
-1,017
3,659
631
-68
-1,110
2,209
17

86,959
43,508
25,888
24,425
-14,427
77,833
-47,493
-5,637
-18,646
52,422
-142,664
76,465
-91,255
-352,495
-117,809
39,115
-96,619
330,920
32,099
-123,848
109,887
49,140
-108,843
-241,722
170,952
-91,919
47,435
-48,794
24,501
29,442
12,061
-205,234
-337,117
119,609
-18,430
147,242
65,792
-4,891
479,237
130,211
-16,852
-5,073
-41,885
127,823
-142,311
-54,855
200,300
34,635
-3,714
-60,430
121,480
935

0.26110
0.51703
0.50042
0.70202
0.16344
0.10157
0.25590
0.17877
0.14739
0.16516
0.80800
0.73903
0.31332
0.81600
0.51933
0.88319
0.64157
0.06267
0.63608
0.74313
0.58955
0.79848
0.22357
0.10582
0.21193
0.30480
0.84797
0.82102
0.84009
0.94234
0.51579
0.20141
0.65149
0.90286
0.04548

-0.63995
0.04271
0.00106
0.53021
-0.98044
-1.27267
-0.65605
-0.92007
-1.04768
-0.97347
0.87056
0.64035
-0.48645
0.90024
0.04846
1.19108
0.36266
-1.53275
0.34799
0.65304
0.22639
0.83621
-0.76021
-1.24908
-0.79974
-0.51065
1.02775
0.91926
0.99482
1.57471
0.03958
-0.83658
0.38935
1.29804
-1.69038

106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140

0.290
0.293
0.296
0.299
0.301
0.304
0.307
0.310
0.312
0.315
0.318
0.321
0.323
0.326
0.329
0.332
0.334
0.337
0.340
0.342
0.345
0.348
0.351
0.353
0.356
0.359
0.362
0.364
0.367
0.370
0.373
0.375
0.378
0.381
0.383

54.57
54.60
54.60
54.91
54.36
53.64
53.28
52.77
52.20
51.67
52.15
52.51
52.24
52.74
52.78
53.44
53.65
52.80
53.00
53.36
53.50
53.97
53.55
52.86
52.42
52.14
52.71
53.23
53.79
54.69
54.71
54.24
54.47
55.22
54.27

0.938
0.942
0.944
0.956
0.940
0.911
0.893
0.861
0.816
0.765
0.819
0.856
0.837
0.884
0.892
0.938
0.952
0.910
0.928
0.953
0.964
0.982
0.975
0.952
0.931
0.918
0.967
0.989
0.998
1.000
1.000
1.000
1.000
1.000
1.000

-1,001
343
260
1,216
-1,607
-2,953
-1,764
-3,164
-4,550
-5,138
5,442
3,700
-1,943
4,792
725
4,634
1,387
-4,241
1,880
2,494
1,033
1,814
-710
-2,302
-2,032
-1,324
4,879
2,263
864
185
5
0
0
0
0

-54,600
18,738
14,175
66,762
-87,362
-158,376
-93,995
-166,968
-237,509
-265,518
283,806
194,271
-101,525
252,726
38,240
247,657
74,419
-223,935
99,614
133,095
55,245
97,892
-38,019
-121,681
-106,519
-69,027
257,195
120,437
46,461
10,135
260
22
17
0
0

TA HEDGING FOR A WRITTEN OPTION

tives, 7e (and Tables 15.2 and 15.3 in Fundamentals, 6e)
que so that two trials are generated when F9 is pressed
d 15.28 in Fundamentals, 6e) is based on this application

Number of shares traded

135,979
160,325

Number of shares traded

342,529
503,467

Case
Int. Cost
2,810
2,574
2,324
2,228
2,827
3,849
4,037
4,218
4,105
4,342
4,599
4,839
4,689
4,846
4,884
4,903
5,037
5,029
5,066
5,047

Cum.
Cost

Stock
Price

Delta

2,929,018
2,683,335
2,422,283
2,322,372
2,946,342
4,012,101
4,208,490
4,396,949
4,279,115
4,526,139
4,794,297
5,044,153
4,887,340
5,051,509
5,091,329
5,110,928
5,250,190
5,242,167
5,280,477
5,288,291
5,293,352
-238,580

50.00
50.80
51.63
51.92
50.13
47.17
46.68
46.19
46.79
46.14
45.28
44.11
45.49
44.91
45.09
45.47
44.21
45.43
44.98
45.09
46.24

0.586
0.634
0.684
0.702
0.586
0.361
0.315
0.268
0.300
0.238
0.164
0.086
0.143
0.091
0.080
0.077
0.017
0.028
0.004
0.000
0.000

Case

Antithetic Case
Shares
Purchased
Cost
58,580
4,852
4,949
1,835
-11,619
-22,455
-4,674
-4,666
3,229
-6,281
-7,392
-7,723
5,635
-5,194
-1,091
-287
-6,012
1,082
-2,342
-413
-12

2,929,018
246,483
255,524
95,297
-582,452
########
-218,156
-215,512
151,107
-289,814
-334,696
-340,653
256,353
-233,273
-49,209
-13,056
-265,825
49,140
-105,350
-18,624
-532

Int. Cost
2,810
3,049
3,297
3,392
2,836
1,823
1,615
1,410
1,556
1,280
960
634
881
658
611
599
345
392
291
272

Cum.
Cost
2,929,018
3,178,311
3,436,884
3,535,478
2,956,418
1,899,942
1,683,608
1,469,712
1,622,229
1,333,971
1,000,555
660,862
917,849
685,457
636,906
624,461
359,235
408,719
303,761
285,428
285,168
285,168

Antithetic Case

Int. Cost

Cum.
Cost

Stock
Price

Delta

Shares
Purchased

Cost

Int. Cost

Cum.
Cost

401
441

2,929,018
3,218,529

50.00
49.09

0.586
0.527

58,580
-5,871

2,929,018
-288,224

401
362

2,929,018
2,641,195

417
402
426
434
424
416
453
472
500
521
507
516
553
544
612
605
631
628
629
627
612
592
585
616
584
570
585
573
579
578
573
607
604
571
565
576
596
593
615
620
594
604
585
623
656
652
653
655
644
666
648
644

3,040,377
2,936,381
3,106,672
3,168,472
3,095,588
3,038,955
3,304,851
3,446,889
3,648,027
3,804,519
3,702,825
3,763,589
4,033,822
3,973,982
4,468,987
4,412,701
4,605,674
4,584,604
4,593,412
4,580,083
4,466,203
4,319,129
4,267,514
4,496,841
4,265,942
4,160,452
4,267,778
4,183,132
4,225,374
4,219,546
4,179,208
4,431,913
4,406,564
4,170,494
4,127,534
4,207,155
4,347,916
4,329,658
4,492,061
4,523,056
4,333,003
4,408,327
4,271,830
4,546,489
4,787,640
4,761,326
4,763,922
4,779,348
4,703,378
4,858,208
4,728,789
4,698,459

49.67
50.00
49.48
49.29
49.53
49.71
48.90
48.46
47.83
47.33
47.69
47.50
46.60
46.83
44.95
45.23
44.37
44.50
44.49
44.58
45.14
45.78
46.00
45.09
46.07
46.48
46.11
46.44
46.31
46.36
46.52
45.61
45.73
46.64
46.81
46.56
46.07
46.17
45.57
45.47
46.24
45.99
46.51
45.51
44.41
44.59
44.61
44.57
44.99
44.21
44.95
45.13

0.564
0.585
0.551
0.538
0.553
0.565
0.510
0.480
0.436
0.400
0.424
0.410
0.347
0.361
0.239
0.254
0.203
0.209
0.207
0.210
0.242
0.280
0.294
0.235
0.296
0.322
0.296
0.317
0.307
0.308
0.319
0.255
0.261
0.322
0.333
0.314
0.278
0.283
0.241
0.233
0.283
0.264
0.300
0.229
0.161
0.169
0.169
0.164
0.187
0.142
0.181
0.190

3,699
2,105
-3,434
-1,273
1,508
1,159
-5,473
-3,032
-4,412
-3,545
2,344
-1,379
-6,296
1,449
-12,198
1,508
-5,147
598
-229
382
3,118
3,887
1,333
-5,911
6,097
2,665
-2,665
2,145
-1,041
159
1,022
-6,389
684
6,089
1,076
-1,953
-3,543
488
-4,222
-817
5,078
-1,935
3,562
-7,119
-6,731
799
-53
-431
2,245
-4,514
3,902
901

183,710
105,250
-169,922
-62,755
74,705
57,626
-267,628
-146,959
-211,035
-167,803
111,791
-65,511
-293,389
67,866
-548,342
68,186
-228,348
26,596
-10,205
17,044
140,748
177,934
61,296
-266,553
280,907
123,851
-122,876
99,636
-48,231
7,388
47,550
-291,371
31,264
283,973
50,363
-90,905
-163,232
22,528
-192,392
-37,137
234,827
-88,996
165,663
-323,979
-298,933
35,618
-2,377
-19,189
101,015
-199,593
175,403
40,649

387
402
378
370
380
388
351
331
302
279
295
286
246
255
180
189
158
162
160
163
182
206
215
178
217
234
217
231
224
225
232
192
196
235
242
230
207
210
184
179
211
199
222
177
137
141
141
138
152
125
149
155

2,825,266
2,930,904
2,761,383
2,699,007
2,774,082
2,832,088
2,564,849
2,418,241
2,207,536
2,040,036
2,152,106
2,086,890
1,793,787
1,861,899
1,313,812
1,382,178
1,154,019
1,180,773
1,170,730
1,187,934
1,328,845
1,506,961
1,568,463
1,302,126
1,583,211
1,707,279
1,584,637
1,684,491
1,636,490
1,644,103
1,691,878
1,400,738
1,432,194
1,716,364
1,766,962
1,676,299
1,513,297
1,536,032
1,343,850
1,306,898
1,541,903
1,453,118
1,618,980
1,295,223
996,467
1,032,222
1,029,986
1,010,939
1,112,093
912,652
1,088,180
1,128,979

656
662
665
669
667
678
671
671
668
675
656
666
654
606
590
595
582
628
632
615
630
637
622
589
613
600
607
600
604
608
609
581
535
552
549
570
579
578
644
662
660
659
653
671
651
644
672
676
676
668
685
685

4,786,061
4,830,225
4,856,775
4,881,866
4,868,107
4,946,607
4,899,792
4,894,826
4,876,850
4,929,940
4,787,951
4,865,073
4,774,484
4,422,643
4,305,439
4,345,144
4,249,121
4,580,623
4,613,349
4,490,133
4,600,635
4,650,405
4,542,199
4,301,099
4,472,640
4,381,333
4,429,368
4,381,181
4,406,282
4,436,328
4,448,996
4,244,372
3,907,836
4,027,980
4,010,103
4,157,894
4,224,256
4,219,943
4,699,759
4,830,613
4,814,423
4,810,010
4,768,784
4,897,261
4,755,621
4,701,417
4,902,361
4,937,668
4,934,630
4,874,876
4,997,024
4,998,643

44.74
44.54
44.43
44.32
44.45
44.00
44.35
44.42
44.57
44.29
45.13
44.77
45.28
46.71
47.11
47.02
47.34
46.31
46.22
46.69
46.34
46.20
46.62
47.41
46.93
47.24
47.13
47.31
47.27
47.21
47.21
47.82
48.66
48.41
48.48
48.16
48.03
48.07
46.76
46.32
46.44
46.51
46.71
46.26
46.87
47.10
46.42
46.33
46.40
46.71
46.24
46.30

0.165
0.152
0.144
0.136
0.141
0.117
0.132
0.134
0.140
0.123
0.168
0.145
0.173
0.273
0.304
0.294
0.319
0.232
0.224
0.258
0.228
0.215
0.246
0.311
0.266
0.291
0.279
0.292
0.286
0.279
0.276
0.330
0.414
0.386
0.391
0.356
0.340
0.342
0.213
0.174
0.180
0.182
0.196
0.156
0.202
0.219
0.157
0.146
0.148
0.169
0.128
0.129

-2,517
-1,293
-780
-744
453
-2,424
1,517
185
590
-1,633
4,443
-2,300
2,791
10,013
3,101
-988
2,505
-8,639
-875
3,451
-2,989
-1,363
3,088
6,508
-4,447
2,489
-1,222
1,332
-611
-747
-284
5,452
8,356
-2,786
500
-3,538
-1,596
186
-12,848
-3,899
579
212
1,359
-3,980
4,604
1,742
-6,198
-1,098
194
2,109
-4,077
39

-112,615
-57,582
-34,638
-32,988
20,136
-106,671
67,279
8,197
26,297
-72,336
200,528
-102,975
126,359
467,715
146,083
-46,448
118,607
-400,012
-40,450
161,151
-138,509
-62,976
143,965
308,553
-208,699
117,573
-57,587
63,001
-28,868
-35,263
-13,419
260,687
406,613
-134,888
24,232
-170,410
-76,677
8,921
-600,813
-180,638
26,879
9,864
63,481
-184,114
215,788
82,057
-287,704
-50,882
8,990
98,523
-188,543
1,790

139
131
127
122
125
110
120
121
124
114
142
128
145
209
229
223
239
184
179
201
182
174
193
236
207
223
215
224
220
215
213
249
305
286
290
267
256
257
175
150
154
155
164
139
168
180
140
133
135
148
122
123

1,016,518
959,075
924,568
891,707
911,966
805,420
872,810
881,126
907,543
835,332
1,035,974
933,141
1,059,627
1,527,488
1,673,780
1,627,562
1,746,392
1,346,620
1,306,354
1,467,684
1,329,376
1,266,582
1,410,721
1,719,467
1,511,003
1,628,783
1,571,419
1,634,635
1,605,990
1,570,947
1,557,743
1,818,644
2,225,506
2,090,924
2,115,442
1,945,322
1,868,912
1,878,088
1,277,532
1,097,069
1,124,099
1,134,117
1,197,753
1,013,803
1,229,730
1,311,955
1,024,431
973,689
982,813
1,081,470
893,075
894,987

677
680
682
691
679
658
645
622
590
554
593
619
605
640
645
679
690
659
673
691
699
712
707
691
676
667
702
719
725
727
727
727
727
701

4,944,728
4,964,143
4,978,998
5,046,443
4,959,772
4,802,075
4,708,738
4,542,415
4,305,529
4,040,600
4,324,960
4,519,823
4,418,917
4,672,249
4,711,129
4,959,432
5,034,531
4,811,286
4,911,559
5,045,327
5,101,263
5,199,854
5,162,547
5,041,574
4,935,745
4,867,395
5,125,257
5,246,396
5,293,576
5,304,437
5,305,424
5,306,173
5,306,916
5,307,643
5,308,344
-118,712

46.62
46.60
46.61
46.35
46.83
47.47
47.80
48.26
48.80
49.30
48.86
48.54
48.79
48.34
48.31
47.72
47.54
48.32
48.14
47.82
47.71
47.30
47.68
48.31
48.72
48.99
48.47
48.01
47.51
46.74
46.73
47.14
46.95
46.32
47.14

0.149
0.143
0.139
0.115
0.149
0.205
0.237
0.289
0.359
0.430
0.359
0.307
0.340
0.267
0.258
0.173
0.145
0.236
0.203
0.152
0.130
0.080
0.106
0.177
0.235
0.275
0.159
0.078
0.026
0.002
0.001
0.001
0.000
0.000
0.000

2,023
-571
-416
-2,382
3,354
5,592
3,184
5,273
6,917
7,124
-7,052
-5,210
3,237
-7,264
-930
-8,486
-2,754
9,100
-3,302
-5,142
-2,218
-4,972
2,637
7,031
5,791
4,091
-11,671
-8,095
-5,186
-2,367
-157
-4
-64
-1
0

94,299
-26,601
-19,368
-110,404
157,075
265,435
152,172
254,487
337,545
351,254
-344,542
-252,859
157,932
-351,096
-44,925
-404,948
-130,912
439,696
-158,989
-245,901
-105,806
-235,148
125,732
339,691
282,131
200,419
-565,687
-388,618
-246,428
-110,632
-7,358
-196
-2,988
-56
0

136
132
129
114
136
172
193
228
274
322
275
241
262
214
208
153
135
195
173
139
125
93
110
157
195
223
145
92
58
43
42
42
42
40
-5,787

989,409
962,944
943,707
833,433
990,622
1,256,193
1,408,537
1,663,217
2,000,989
2,352,517
2,008,297
1,755,713
1,913,886
1,563,052
1,518,342
1,113,602
982,843
1,422,674
1,263,880
1,018,152
912,485
677,462
803,287
1,143,088
1,425,376
1,625,991
1,060,527
672,055
425,719
315,144
307,829
307,675
304,729
304,715
304,755
304,755

Trading Volume
Base

Antithetic

58,580
5,044
5,432
2,116
12,410
19,942
3,570
3,380
2,263
4,437
4,723
4,273
2,901
2,823
621
263
2,333
233
587
48
0
135,979

58,580
4,852
4,949
1,835
11,619
22,455
4,674
4,666
3,229
6,281
7,392
7,723
5,635
5,194
1,091
287
6,012
1,082
2,342
413
12
160,325

Trading Volume

Base

Antithetic

58,580
5,677

58,580
5,871

3,547
2,087
3,360
1,209
1,451
1,133
5,186
2,741
3,833
2,948
1,946
1,142
5,016
1,128
8,868
1,026
3,404
385
145
248
2,060
2,694
957
4,109
4,248
1,963
1,960
1,576
768
118
757
4,575
472
4,390
810
1,463
2,567
346
2,930
549
3,503
1,365
2,532
4,952
4,241
477
34
261
1,368
2,704
2,319
554

3,699
2,105
3,434
1,273
1,508
1,159
5,473
3,032
4,412
3,545
2,344
1,379
6,296
1,449
12,198
1,508
5,147
598
229
382
3,118
3,887
1,333
5,911
6,097
2,665
2,665
2,145
1,041
159
1,022
6,389
684
6,089
1,076
1,953
3,543
488
4,222
817
5,078
1,935
3,562
7,119
6,731
799
53
431
2,245
4,514
3,902
901

1,542
768
456
429
254
1,357
834
99
329
919
2,548
1,355
1,635
6,514
2,196
727
1,809
6,058
586
2,286
2,012
897
2,005
4,527
3,168
1,715
883
911
457
549
225
3,871
6,470
2,283
352
2,795
1,245
93
8,830
2,376
308
93
770
2,328
2,625
1,017
3,659
631
68
1,110
2,209
17

2,517
1,293
780
744
453
2,424
1,517
185
590
1,633
4,443
2,300
2,791
10,013
3,101
988
2,505
8,639
875
3,451
2,989
1,363
3,088
6,508
4,447
2,489
1,222
1,332
611
747
284
5,452
8,356
2,786
500
3,538
1,596
186
12,848
3,899
579
212
1,359
3,980
4,604
1,742
6,198
1,098
194
2,109
4,077
39

1,001
343
260
1,216
1,607
2,953
1,764
3,164
4,550
5,138
5,442
3,700
1,943
4,792
725
4,634
1,387
4,241
1,880
2,494
1,033
1,814
710
2,302
2,032
1,324
4,879
2,263
864
185
5
0
0
0
0
342,529

2,023
571
416
2,382
3,354
5,592
3,184
5,273
6,917
7,124
7,052
5,210
3,237
7,264
930
8,486
2,754
9,100
3,302
5,142
2,218
4,972
2,637
7,031
5,791
4,091
11,671
8,095
5,186
2,367
157
4
64
1
0
503,467

INVESTIGATES THE EFFECTIVENESS OF DELTA AND GA

Uses Monte Carlo Simulation with the antithetic variable technique
Problem 24.31 in Options, Futures, and Other Deriva
Hedging a binary option with a call option
Market Data
Stock Price 49
Int. Rate 5%
Vol 30%

Binary Option
Strike
52
Number of Shares
1,000
T
0.3836
IsCall
TRUE
IsCash
FALSE
Option Price
22,088

Hedging Call
Strike
55
T
0.5
IsCall
TRUE

Option Price

Asset or Nothing
Random Numbers
Uniform
Normal
0.82086
0.91864
0.41267
-0.22067
0.66098
0.41513
0.29878
-0.52793
0.16701
-0.96605
0.35132
-0.38176
0.81058
0.88004
0.26399
-0.63110
0.92548
1.44296
0.96200
1.77444
0.13129
-1.12032
0.38365
-0.29590
0.89125
1.23319
0.81333
0.89024
0.29205
-0.54740
0.58324
0.21018
0.64906
0.38278
0.54527
0.11371
0.23302
-0.72892
0.38815
-0.28415

2.40

Hedge Option

Week

Stock
Price

0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

0.000
0.019
0.038
0.058
0.077
0.096
0.115
0.134
0.153
0.173
0.192
0.211
0.230
0.249
0.268
0.288
0.307
0.326
0.345
0.364
0.383

49.00
50.91
50.45
51.33
50.23
48.25
47.50
49.27
48.00
50.97
54.88
52.39
51.75
54.48
56.54
55.27
55.76
56.66
56.93
55.24
54.60

Week

Stock
Price

Delta

Gamma

Price

Delta

0
1
2

0.000
0.019
0.038

49.00
47.17
47.61

2581.6
2438.3
2530.7

72.4
128.3
126.0

2.401
1.696
1.749

0.374
0.302
0.311

Delta

Gamma

Price

Delta

2581.6
2726.5
2768.9
2858.0
2885.9
2758.0
2689.3
3029.9
2898.0
3395.3
3320.7
3718.7
3916.4
3843.1
3369.4
4005.4
3945.1
3377.7
2820.0
4056.8
1000.0

72.4
25.4
41.1
17.3
57.4
139.3
182.7
124.2
202.6
150.8
-151.2
-32.0
19.0
-225.1
-366.1
-416.3
-569.2
-727.8
-866.1
-1983.3
0.0

2.401
3.082
2.784
3.061
2.488
1.690
1.379
1.832
1.344
2.241
3.989
2.590
2.187
3.339
4.391
3.466
3.586
3.971
3.969
2.738
2.191

0.374
0.440
0.417
0.446
0.398
0.314
0.277
0.339
0.280
0.397
0.565
0.448
0.411
0.538
0.634
0.572
0.596
0.644
0.662
0.562
0.515

Asset or Nothing

Hedge Option

3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

0.058
0.077
0.096
0.115
0.134
0.153
0.173
0.192
0.211
0.230
0.249
0.268
0.288
0.307
0.326
0.345
0.364
0.383

46.80
47.84
49.81
50.61
48.79
50.10
47.18
43.84
45.93
46.50
44.18
42.58
43.57
43.19
42.51
42.32
43.62
44.14

2451.3
2648.4
2928.4
3062.0
2965.1
3213.3
2763.3
1669.9
2396.4
2615.7
1513.8
732.3
875.0
496.2
139.4
18.3
1.5
0.0

160.1
141.0
79.8
54.2
146.4
96.1
265.6
347.3
380.6
416.9
433.9
316.5
394.1
298.3
124.4
25.4
3.5
0.0

1.431
1.651
2.224
2.430
1.674
2.018
1.045
0.393
0.634
0.663
0.285
0.129
0.153
0.101
0.053
0.031
0.041
0.033

0.275
0.306
0.375
0.401
0.320
0.366
0.238
0.118
0.172
0.181
0.097
0.053
0.062
0.045
0.027
0.018
0.024
0.021

SS OF DELTA AND GAMMA HEDGING FOR A WRITTEN OPTION

etic variable technique so that two trials are generated when F9 is pressed
ures, and Other Derivatives, 7e is based on this application
Push F9 to see a new set of results
Weekly Hedging
Cum. Cost Payoff
Tot. Cost
Base Case 79,935
54,598
134,533
Antithetic Case 17,059
0
17,059

Hedge Option
Gamma
0.036
0.037
0.038
0.039
0.039
0.039
0.038
0.041
0.040
0.044
0.043
0.047
0.048
0.049
0.046
0.051
0.053
0.053
0.054
0.065
0.071

Hedge Option
Gamma
0.036
0.036
0.036

Base Case
Gamma Hedge
Opt.
Opt. Posn. Purch.
Cost
1,987
683
1,083
449
1,460
3,615
4,823
3,033
5,106
3,422
-3,510
-683
394
-4,638
-7,944
-8,105
-10,804
-13,848
-15,916
-30,711
0

1,987
-1,304
400
-635
1,011
2,155
1,208
-1,789
2,073
-1,684
-6,932
2,827
1,077
-5,032
-3,306
-161
-2,700
-3,043
-2,068
-14,796
30,711

4,771
-4,019
1,114
-1,943
2,516
3,642
1,665
-3,278
2,785
-3,773
-27,653
7,324
2,355
-16,799
-14,515
-558
-9,683
-12,084
-8,206
-40,510
67,278

Antithetic Case
Gamma Hedge
Opt.
Opt. Posn. Purch.
Cost
1,987
3,609
3,460

1,987
1,622
-149

4,771
2,752
-261

Trading Volume
Calls
Shares
86,899
48,617
51,851
9,097

Delta Hedge
Shares
Net Delta Purchased
1,838
2,426
2,317
2,658
2,305
1,623
1,353
2,001
1,470
2,038
5,302
4,024
3,755
6,338
8,408
8,641
10,385
12,298
13,352
21,316
1,000

1,838
588
-110
341
-353
-682
-271
648
-530
567
3,265
-1,278
-270
2,583
2,070
233
1,745
1,912
1,054
7,964
-20,316

Delta Hedge
Shares
Net Delta Purchased
1,838
1,348
1,454

1,838
-490
106

Cost

Total Cost Int. Cost

90,058
94,829
29,948
25,930
-5,529
-4,415
17,520
15,577
-17,708
-15,192
-32,909
-29,267
-12,858
-11,193
31,941
28,663
-25,464
-22,678
28,908
25,135
179,153 151,500
-66,934
-59,610
-13,955
-11,600
140,713 123,913
117,029 102,515
12,876
12,318
97,288
87,605
108,357
96,273
60,008
51,803
439,934 399,424
######## ########

Cost
90,058
-23,092
5,050

91
120
115
132
115
83
71
102
77
105
277
213
200
335
448
461
554
659
717
1,134

Total Cost Int. Cost

94,829
-20,340
4,788

91
69
74

0.036
0.038
0.040
0.041
0.040
0.043
0.038
0.027
0.034
0.036
0.026
0.017
0.020
0.017
0.012
0.009
0.012
0.011

4,483
3,754
1,998
1,321
3,626
2,259
6,946
12,847
11,070
11,484
16,790
18,120
19,470
17,873
10,590
2,858
304
0

1,023
-729
-1,756
-677
2,305
-1,367
4,686
5,901
-1,777
414
5,306
1,330
1,350
-1,597
-7,283
-7,732
-2,554
-304

1,464
-1,203
-3,905
-1,645
3,860
-2,759
4,897
2,319
-1,127
274
1,511
172
206
-161
-384
-243
-106
-10

1,219
1,501
2,179
2,532
1,806
2,386
1,108
157
495
540
-113
-221
-328
-311
-147
-33
-6
0

-235
282
678
353
-727
581
-1,279
-950
338
45
-653
-107
-108
17
163
114
28
6

-10,997
13,475
33,772
17,862
-35,457
29,102
-60,332
-41,659
15,509
2,091
-28,869
-4,565
-4,688
751
6,946
4,828
1,202
252

-9,532
12,272
29,867
16,217
-31,598
26,343
-55,435
-39,340
14,382
2,366
-27,358
-4,394
-4,482
590
6,562
4,585
1,096
242

63
76
109
126
92
120
62
22
37
39
12
7
3
4
10
15
16

Trading Volume
Cum. Cost

Calls

Shares

94,829
124,869
119,460
137,094
119,517
86,723
73,948
105,960
80,598
109,583
288,841
222,185
208,443
349,355
466,720
480,043
577,792
686,703
747,370
1,188,022
79,935
25,336

1,987
1,304
400
635
1,011
2,155
1,208
1,789
2,073
1,684
6,932
2,827
1,077
5,032
3,306
161
2,700
3,043
2,068
14,796
30,711
86,899

1,838
588
110
341
353
682
271
648
530
567
3,265
1,278
270
2,583
2,070
233
1,745
1,912
1,054
7,964
20,316
48,617

Trading Volume
Cum. Cost

Calls

Shares

94,829
71,828
76,947

1,987
1,622
149

1,838
490
106

66,024
79,563
113,411
131,382
96,051
125,245
65,033
23,436
38,967
41,096
12,267
7,713
3,032
3,786
10,736
15,574
16,791
17,059
17,059

1,023
729
1,756
677
2,305
1,367
4,686
5,901
1,777
414
5,306
1,330
1,350
1,597
7,283
7,732
2,554
304
51,851

235
282
678
353
727
581
1,279
950
338
45
653
107
108
17
163
114
28
6
9,097

VALUE AT RISK CALCULATION FOR PORTFOLIO OF OPTIONS DEPENDENT ON A SINGLE ST

Uses Results in Chapter 20 of Options, Futures and Other Derivatives, 7e
Problem 20.21 in Options, Futures and Other Derivatives, 7e is based on this application
Today
S
IsFut
r
q
Volatility
1-Day Vol

0
49
FALSE
5%
0%
30%
1.89%

Portfolio
Underlying
Black Scholes
Black Scholes
Black Scholes

Type
0
1
1
1

Portfolio
Value
55,246
Delta
486.42
Gamma
127.87
Linear model

1-Day VaR

Quadratic Model

E(dP)
E(dp^2)
E(dP^3)
1-Day VaR

Prob<S
0.001
0.002
0.003
0.004
0.005
0.006
0.007
0.008
0.009
0.01
0.011
0.012
0.013
0.014
0.015
0.016
0.017
0.018
0.019
0.02
0.021
0.022

54.82
211905.06
102579169.3

mu_P
Sig_P
Xi_P

54.82
457.06
0.7128

z_q
w_q

-768.89

We calculate the analytic VaR by generating 1000 equally likely portfolio values
1-Day VaR
-783.70
Portfolio
S
Value
57,500
46.13840484
54,343
46.33478493
54,368
57,000
46.45551883
54,386
46.54414899
54,400
46.61474869
54,412
56,500
46.6737218
54,423
46.72454226
54,432
56,000
46.76931299
54,441
46.80940696
46.84577172
46.87908966
46.90986907
46.93849905
46.96528434
46.99046819
47.01424798
47.03678614
47.05821803
47.07865763
47.09820189
47.11693399
47.13492581

54,449
54,456
54,463
54,469
54,476
54,481
54,487
54,492
54,498
54,502
54,507
54,512
54,516
54,521

Portfolio Value

Analytic VaR

-1047.86

55,500
55,000
54,500
54,000
45

46

0.023
0.024
0.025
0.026
0.027
0.028
0.029
0.03
0.031
0.032
0.033
0.034
0.035
0.036
0.037
0.038
0.039
0.04
0.041
0.042
0.043
0.044
0.045
0.046
0.047
0.048
0.049
0.05
0.051
0.052
0.053
0.054
0.055
0.056
0.057
0.058
0.059
0.06
0.061
0.062
0.063
0.064
0.065
0.066
0.067
0.068
0.069
0.07
0.071
0.072
0.073
0.074

47.15223994
47.16893121
47.18504795
47.20063297
47.21572436
47.23035623
47.24455916
47.25836075
47.27178596
47.28485745
47.29759586
47.31002003
47.32214724
47.33399332
47.34557287
47.35689936
47.36798523
47.37884201
47.38948042
47.39991043
47.4101413
47.42018171
47.43003975
47.43972301
47.44923861
47.45859322
47.46779312
47.47684423
47.48575211
47.49452204
47.50315897
47.51166762
47.52005244
47.52831765
47.53646725
47.54450504
47.55243465
47.5602595
47.56798289
47.57560792
47.58313759
47.59057472
47.59792203
47.60518212
47.61235748
47.61945047
47.62646338
47.63339838
47.64025757
47.64704296
47.65375647
47.66039996

54,525
54,529
54,533
54,537
54,541
54,544
54,548
54,552
54,555
54,558
54,562
54,565
54,568
54,571
54,575
54,578
54,581
54,584
54,586
54,589
54,592
54,595
54,598
54,600
54,603
54,606
54,608
54,611
54,614
54,616
54,619
54,621
54,623
54,626
54,628
54,631
54,633
54,635
54,638
54,640
54,642
54,644
54,647
54,649
54,651
54,653
54,655
54,657
54,660
54,662
54,664
54,666

0.075
0.076
0.077
0.078
0.079
0.08
0.081
0.082
0.083
0.084
0.085
0.086
0.087
0.088
0.089
0.09
0.091
0.092
0.093
0.094
0.095
0.096
0.097
0.098
0.099
0.1
0.101
0.102
0.103
0.104
0.105
0.106
0.107
0.108
0.109
0.11
0.111
0.112
0.113
0.114
0.115
0.116
0.117
0.118
0.119
0.12
0.121
0.122
0.123
0.124
0.125
0.126

47.6669752
47.67348392
47.67992775
47.68630828
47.69262705
47.69888553
47.70508513
47.71122722
47.71731314
47.72334415
47.72932149
47.73524635
47.74111988
47.7469432
47.75271738
47.75844346
47.76412247
47.76975537
47.77534311
47.78088661
47.78638676
47.79184443
47.79726045
47.80263563
47.80797078
47.81326664
47.81852398
47.8237435
47.82892592
47.83407192
47.83918216
47.84425729
47.84929794
47.85430473
47.85927824
47.86421907
47.86912777
47.87400489
47.87885099
47.88366656
47.88845214
47.89320822
47.89793527
47.90263378
47.90730421
47.911947
47.91656261
47.92115145
47.92571395
47.93025053
47.93476157
47.93924747

54,668
54,670
54,672
54,674
54,676
54,678
54,680
54,682
54,684
54,685
54,687
54,689
54,691
54,693
54,695
54,697
54,699
54,700
54,702
54,704
54,706
54,708
54,709
54,711
54,713
54,715
54,716
54,718
54,720
54,722
54,723
54,725
54,727
54,728
54,730
54,732
54,733
54,735
54,737
54,738
54,740
54,741
54,743
54,745
54,746
54,748
54,749
54,751
54,753
54,754
54,756
54,757

0.127
0.128
0.129
0.13
0.131
0.132
0.133
0.134
0.135
0.136
0.137
0.138
0.139
0.14
0.141
0.142
0.143
0.144
0.145
0.146
0.147
0.148
0.149
0.15
0.151
0.152
0.153
0.154
0.155
0.156
0.157
0.158
0.159
0.16
0.161
0.162
0.163
0.164
0.165
0.166
0.167
0.168
0.169
0.17
0.171
0.172
0.173
0.174
0.175
0.176
0.177
0.178

47.94370861
47.94814538
47.95255813
47.95694722
47.961313
47.96565582
47.969976
47.97427388
47.97854978
47.98280401
47.98703688
47.99124868
47.99543973
47.99961029
48.00376066
48.00789112
48.01200193
48.01609336
48.02016567
48.02421912
48.02825396
48.03227044
48.03626879
48.04024925
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49.26106743
49.2634836
49.26590156
49.26832133
49.27074294
49.2731664
49.27559174
49.27801896
49.2804481
49.28287917
49.28531219
49.28774718
49.29018416
49.29262315
49.29506418
49.29750726
49.29995241
49.30239965
49.30484901
49.3073005
49.30975415
49.31220997
49.31466799
49.31712823
49.31959071
49.32205546
49.32452249
49.32699182
49.32946348
49.33193749
49.33441387
49.33689264
49.33937384
49.34185747
49.34434356
49.34683213

55,309
55,310
55,311
55,312
55,314
55,315
55,316
55,317
55,318
55,320
55,321
55,322
55,323
55,325
55,326
55,327
55,328
55,330
55,331
55,332
55,333
55,335
55,336
55,337
55,338
55,340
55,341
55,342
55,344
55,345
55,346
55,347
55,349
55,350
55,351
55,352
55,354
55,355
55,356
55,358
55,359
55,360
55,361
55,363
55,364
55,365
55,367
55,368
55,369
55,371
55,372
55,373

0.647
0.648
0.649
0.65
0.651
0.652
0.653
0.654
0.655
0.656
0.657
0.658
0.659
0.66
0.661
0.662
0.663
0.664
0.665
0.666
0.667
0.668
0.669
0.67
0.671
0.672
0.673
0.674
0.675
0.676
0.677
0.678
0.679
0.68
0.681
0.682
0.683
0.684
0.685
0.686
0.687
0.688
0.689
0.69
0.691
0.692
0.693
0.694
0.695
0.696
0.697
0.698

49.34932322
49.35181683
49.354313
49.35681175
49.35931309
49.36181706
49.36432368
49.36683297
49.36934496
49.37185967
49.37437712
49.37689735
49.37942036
49.3819462
49.38447489
49.38700644
49.38954089
49.39207826
49.39461858
49.39716187
49.39970816
49.40225748
49.40480984
49.40736529
49.40992385
49.41248553
49.41505038
49.41761842
49.42018967
49.42276416
49.42534193
49.427923
49.43050739
49.43309515
49.43568629
49.43828085
49.44087885
49.44348032
49.44608531
49.44869382
49.4513059
49.45392158
49.45654089
49.45916385
49.4617905
49.46442087
49.467055
49.4696929
49.47233463
49.47498021
49.47762967
49.48028304

55,375
55,376
55,377
55,379
55,380
55,381
55,383
55,384
55,385
55,387
55,388
55,389
55,391
55,392
55,393
55,395
55,396
55,397
55,399
55,400
55,401
55,403
55,404
55,405
55,407
55,408
55,410
55,411
55,412
55,414
55,415
55,417
55,418
55,419
55,421
55,422
55,424
55,425
55,426
55,428
55,429
55,431
55,432
55,433
55,435
55,436
55,438
55,439
55,441
55,442
55,443
55,445

0.699
0.7
0.701
0.702
0.703
0.704
0.705
0.706
0.707
0.708
0.709
0.71
0.711
0.712
0.713
0.714
0.715
0.716
0.717
0.718
0.719
0.72
0.721
0.722
0.723
0.724
0.725
0.726
0.727
0.728
0.729
0.73
0.731
0.732
0.733
0.734
0.735
0.736
0.737
0.738
0.739
0.74
0.741
0.742
0.743
0.744
0.745
0.746
0.747
0.748
0.749
0.75

49.48294036
49.48560167
49.48826699
49.49093637
49.49360983
49.49628741
49.49896915
49.50165507
49.50434523
49.50703965
49.50973837
49.51244142
49.51514885
49.51786069
49.52057698
49.52329775
49.52602305
49.52875291
49.53148738
49.53422649
49.53697028
49.53971879
49.54247206
49.54523014
49.54799307
49.55076088
49.55353362
49.55631134
49.55909406
49.56188185
49.56467474
49.56747277
49.570276
49.57308446
49.5758982
49.57871727
49.58154171
49.58437157
49.5872069
49.59004775
49.59289416
49.59574618
49.59860387
49.60146727
49.60433643
49.6072114
49.61009224
49.612979
49.61587172
49.61877047
49.62167529
49.62458625

55,446
55,448
55,449
55,451
55,452
55,454
55,455
55,457
55,458
55,460
55,461
55,463
55,464
55,466
55,467
55,469
55,470
55,472
55,473
55,475
55,476
55,478
55,479
55,481
55,482
55,484
55,485
55,487
55,488
55,490
55,491
55,493
55,495
55,496
55,498
55,499
55,501
55,502
55,504
55,506
55,507
55,509
55,510
55,512
55,514
55,515
55,517
55,518
55,520
55,522
55,523
55,525

0.751
0.752
0.753
0.754
0.755
0.756
0.757
0.758
0.759
0.76
0.761
0.762
0.763
0.764
0.765
0.766
0.767
0.768
0.769
0.77
0.771
0.772
0.773
0.774
0.775
0.776
0.777
0.778
0.779
0.78
0.781
0.782
0.783
0.784
0.785
0.786
0.787
0.788
0.789
0.79
0.791
0.792
0.793
0.794
0.795
0.796
0.797
0.798
0.799
0.8
0.801
0.802

49.62750339
49.63042677
49.63335645
49.63629248
49.63923492
49.64218383
49.64513926
49.64810128
49.65106995
49.65404533
49.65702747
49.66001644
49.6630123
49.66601512
49.66902496
49.67204189
49.67506596
49.67809726
49.68113583
49.68418176
49.6872351
49.69029594
49.69336434
49.69644037
49.6995241
49.70261561
49.70571498
49.70882226
49.71193755
49.71506092
49.71819245
49.72133221
49.72448028
49.72763675
49.7308017
49.7339752
49.73715735
49.74034823
49.74354793
49.74675653
49.74997411
49.75320078
49.75643662
49.75968172
49.76293618
49.76620009
49.76947354
49.77275664
49.77604948
49.77935217
49.7826648
49.78598747

55,527
55,528
55,530
55,532
55,533
55,535
55,537
55,538
55,540
55,542
55,543
55,545
55,547
55,548
55,550
55,552
55,554
55,555
55,557
55,559
55,561
55,562
55,564
55,566
55,568
55,569
55,571
55,573
55,575
55,577
55,578
55,580
55,582
55,584
55,586
55,587
55,589
55,591
55,593
55,595
55,597
55,599
55,600
55,602
55,604
55,606
55,608
55,610
55,612
55,614
55,616
55,618

0.803
0.804
0.805
0.806
0.807
0.808
0.809
0.81
0.811
0.812
0.813
0.814
0.815
0.816
0.817
0.818
0.819
0.82
0.821
0.822
0.823
0.824
0.825
0.826
0.827
0.828
0.829
0.83
0.831
0.832
0.833
0.834
0.835
0.836
0.837
0.838
0.839
0.84
0.841
0.842
0.843
0.844
0.845
0.846
0.847
0.848
0.849
0.85
0.851
0.852
0.853
0.854

49.78932029
49.79266338
49.79601682
49.79938073
49.80275523
49.80614042
49.80953642
49.81294335
49.81636131
49.81979043
49.82323083
49.82668263
49.83014595
49.83362093
49.83710768
49.84060635
49.84411705
49.84763993
49.85117512
49.85472276
49.85828299
49.86185596
49.86544179
49.86904066
49.8726527
49.87627806
49.87991691
49.88356939
49.88723567
49.89091591
49.89461028
49.89831895
49.90204207
49.90577984
49.90953242
49.9133
49.91708276
49.92088089
49.92469457
49.928524
49.93236937
49.93623089
49.94010876
49.94400319
49.94791438
49.95184256
49.95578794
49.95975075
49.96373121
49.96772956
49.97174604
49.97578088

55,620
55,622
55,624
55,626
55,627
55,629
55,631
55,633
55,635
55,638
55,640
55,642
55,644
55,646
55,648
55,650
55,652
55,654
55,656
55,658
55,660
55,662
55,665
55,667
55,669
55,671
55,673
55,675
55,677
55,680
55,682
55,684
55,686
55,689
55,691
55,693
55,695
55,698
55,700
55,702
55,705
55,707
55,709
55,712
55,714
55,716
55,719
55,721
55,724
55,726
55,728
55,731

0.855
0.856
0.857
0.858
0.859
0.86
0.861
0.862
0.863
0.864
0.865
0.866
0.867
0.868
0.869
0.87
0.871
0.872
0.873
0.874
0.875
0.876
0.877
0.878
0.879
0.88
0.881
0.882
0.883
0.884
0.885
0.886
0.887
0.888
0.889
0.89
0.891
0.892
0.893
0.894
0.895
0.896
0.897
0.898
0.899
0.9
0.901
0.902
0.903
0.904
0.905
0.906

49.97983433
49.98390664
49.98799807
49.99210888
49.99623934
50.00038971
50.00456027
50.00875132
50.01296312
50.01719599
50.02145022
50.02572612
50.030024
50.03434418
50.038687
50.04305278
50.04744187
50.05185462
50.05629139
50.06075253
50.06523843
50.06974947
50.07428605
50.07884855
50.08343739
50.088053
50.09269579
50.09736622
50.10206473
50.10679178
50.11154786
50.11633344
50.12114901
50.12599511
50.13087223
50.13578093
50.14072176
50.14569527
50.15070206
50.15574271
50.16081784
50.16592808
50.17107408
50.1762565
50.18147602
50.18673336
50.19202922
50.19736437
50.20273955
50.20815557
50.21361324
50.21911339

55,733
55,736
55,738
55,741
55,743
55,746
55,748
55,751
55,754
55,756
55,759
55,761
55,764
55,767
55,769
55,772
55,775
55,778
55,780
55,783
55,786
55,789
55,791
55,794
55,797
55,800
55,803
55,806
55,809
55,812
55,815
55,818
55,821
55,824
55,827
55,830
55,833
55,836
55,839
55,842
55,846
55,849
55,852
55,855
55,859
55,862
55,865
55,869
55,872
55,876
55,879
55,883

0.907
0.908
0.909
0.91
0.911
0.912
0.913
0.914
0.915
0.916
0.917
0.918
0.919
0.92
0.921
0.922
0.923
0.924
0.925
0.926
0.927
0.928
0.929
0.93
0.931
0.932
0.933
0.934
0.935
0.936
0.937
0.938
0.939
0.94
0.941
0.942
0.943
0.944
0.945
0.946
0.947
0.948
0.949
0.95
0.951
0.952
0.953
0.954
0.955
0.956
0.957
0.958

50.22465689
50.23024463
50.23587753
50.24155654
50.24728262
50.2530568
50.25888012
50.26475365
50.27067851
50.27665585
50.28268686
50.28877278
50.29491487
50.30111447
50.30737295
50.31369172
50.32007225
50.32651608
50.3330248
50.33960004
50.34624353
50.35295704
50.35974243
50.36660162
50.37353662
50.38054953
50.38764252
50.39481788
50.40207797
50.40942528
50.41686241
50.42439208
50.43201711
50.4397405
50.44756535
50.45549496
50.46353275
50.47168235
50.47994756
50.48833238
50.49684103
50.50547796
50.51424789
50.52315577
50.53220688
50.54140678
50.55076139
50.56027699
50.56996025
50.57981829
50.5898587
50.60008957

55,886
55,890
55,893
55,897
55,901
55,904
55,908
55,912
55,916
55,920
55,923
55,927
55,931
55,935
55,939
55,944
55,948
55,952
55,956
55,960
55,965
55,969
55,974
55,978
55,983
55,987
55,992
55,997
56,002
56,006
56,011
56,016
56,021
56,027
56,032
56,037
56,042
56,048
56,053
56,059
56,065
56,071
56,076
56,082
56,089
56,095
56,101
56,108
56,114
56,121
56,128
56,135

0.959
0.96
0.961
0.962
0.963
0.964
0.965
0.966
0.967
0.968
0.969
0.97
0.971
0.972
0.973
0.974
0.975
0.976
0.977
0.978
0.979
0.98
0.981
0.982
0.983
0.984
0.985
0.986
0.987
0.988
0.989
0.99
0.991
0.992
0.993
0.994
0.995
0.996
0.997
0.998
0.999

50.61051958
50.62115799
50.63201477
50.64310064
50.65442713
50.66600668
50.67785276
50.68997997
50.70240414
50.71514255
50.72821404
50.74163925
50.75544084
50.76964377
50.78427564
50.79936703
50.81495205
50.83106879
50.84776006
50.86507419
50.88306601
50.90179811
50.92134237
50.94178197
50.96321386
50.98575202
51.00953181
51.03471566
51.06150095
51.09013093
51.12091034
51.15422828
51.19059304
51.23068701
51.27545774
51.3262782
51.38525131
51.45585101
51.54448117
51.66521507
51.86159516

56,142
56,149
56,157
56,164
56,172
56,180
56,189
56,197
56,206
56,215
56,224
56,233
56,243
56,253
56,263
56,274
56,285
56,296
56,308
56,321
56,334
56,347
56,361
56,376
56,392
56,408
56,426
56,444
56,464
56,485
56,508
56,533
56,561
56,591
56,625
56,664
56,710
56,766
56,836
56,933
57,094

ENT ON A SINGLE STOCK

erivatives, 7e
d on this application
Number
1000
100
500
1600

55
50
50

0.5
0.25
0.2

TRUE
TRUE
FALSE

-2.3263
-1.8022

47

48

49
Asset Price

50

51

52

53

CALCULATION OF A STATIC OPTIONS REPLICATION

Carries out calculations for the example in Section 24.14 of Option
Problem 24.27 in Options, Futures, and Other Derivatives, 7e is bas
Barrier Option
Stock
50
Strike
50
Barrier
60
r
10.00%
q
0%
vol
30%
t
0.75

IsUp
IsIn
IsCall

Barrier Price

A four option hedge

S at which Portfolio
Hedge
value is without this
Time
zero
Opt.
0.5
0.25
0
0

60
60
60
50

11.543
-4.214
-1.221

A sixteen option hedge

S at which Portfolio
Hedge
value is without this
Time
zero
Opt.
0.7
0.65
0.6
0.55
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
0

60
60
60
60
60
60
60
60
60
60
60
60
60
60
60
50

10.252
-4.469
-1.453
-0.686
-0.393
-0.254
-0.178
-0.132
-0.102
-0.081
-0.067
-0.056
-0.047
-0.041
-0.035

55

TRUE
FALSE
TRUE

0.3136

Hedge Portfolio
Value of
this Opt.

Number
needed to
Hedge

4.333
4.333
4.333

-2.664
0.973
0.282

Value of
this Opt.

Number
needed to
Hedge

1.755
1.755
1.755
1.755
1.755
1.755
1.755
1.755
1.755
1.755
1.755
1.755
1.755
1.755
1.755

-5.840
2.546
0.827
0.391
0.224
0.145
0.102
0.075
0.058
0.046
0.038
0.032
0.027
0.023
0.020

Type
1
1
1
1

Number
1
-2.664
0.973
0.282

K
50
60
60
60

Tmat IsCall
0.75 TRUE
0.75 TRUE
0.5 TRUE
0.25 TRUE
Hedge Price

Hedge Portfolio

Type
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1

Number
1
-5.840
2.546
0.827
0.391
0.224
0.145
0.102
0.075
0.058
0.046
0.038
0.032
0.027
0.023
0.020

K
50
60
60
60
60
60
60
60
60
60
60
60
60
60
60
60

Tmat IsCall
0.75 TRUE
0.75 TRUE
0.7 TRUE
0.65 TRUE
0.6 TRUE
0.55 TRUE
0.5 TRUE
0.45 TRUE
0.4 TRUE
0.35 TRUE
0.3 TRUE
0.25 TRUE
0.2 TRUE
0.15 TRUE
0.1 TRUE
0.05 TRUE
Hedge Price

S
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.1
0.11
0.12
0.13
0.14
0.15
0.16
0.17
0.18
0.19
0.2
0.21
0.22
0.23
0.24
0.25
0.26
0.27
0.28
0.29
0.3
0.31
0.32
0.33
0.34
0.35
0.36
0.37
0.38
0.39
0.4
0.41
0.42
0.43
0.44
0.45
0.46
0.47
0.48
0.49
0.5

Portfolio
Barrier
55 0.2144968 0.169284
55 0.220303 0.1726499
55 0.2258917 0.1761235
Portfolio
55 0.231257 0.1797097
55 0.2363931 0.1834134
55 0.2412963 0.1872403
55 0.2459603 0.1911959
55 0.250384 0.1952864
55 0.2545689 0.1995184
55 0.2585158 0.2038986
55 0.2622369 0.2084344
55 0.2657476 0.2131336
55 0.2690786 0.2180045
55 0.2722804 0.2230558
55 0.2754379 0.2282971
55
0.27864 0.2337358
55 0.2821772 0.2393878
55 0.2863954 0.2452617
55 0.2919153 0.2513701
55 0.2994798 0.257726
55 0.3083789 0.2643437
55 0.3171311 0.2712384
55 0.3256721 0.2784265
55 0.3340466 0.2859256
55 0.342329 0.2937549
55 0.3506434 0.3019349
55 0.359199 0.3104878
55 0.3683506 0.3194378
55 0.3786842 0.3288108
0 55
0.020.3909026
0.04 0.06 0.08
0.1 0.12 0.14 0.16 0.18 0.2 0.22 0.24 0.26 0.28 0.3 0.32 0.34
0.3386354
55 0.4043453 0.3489423
55 0.417631 0.3597651
55 0.4307179 0.3711405
55 0.4436779 0.3831084
55 0.4566279 0.3957128
55 0.4697605 0.4090017
55 0.4833961 0.423028
55 0.4980757 0.4378498
55 0.5146883 0.4535312
55 0.5342999 0.4701433
55 0.5559329 0.4877648
55 0.5775305 0.5064829
55 0.5990515 0.526395
55 0.6206304 0.5476096
55 0.6424779 0.5702484
55 0.6649289 0.5944479
55 0.6885259 0.6203618
55 0.7141644 0.6481636
55 0.7432958 0.6780502
55 0.7777018 0.7102452
55 0.8162737 0.7450042

0.51
0.52
0.53
0.54
0.55
0.56
0.57
0.58
0.59
0.6
0.61
0.62
0.63
0.64
0.65
0.66
0.67
0.68
0.69
0.7
0.71
0.72
0.73
0.74

55
55
55
55
55
55
55
55
55
55
55
55
55
55
55
55
55
55
55
55
55
55
55
55

0.8565084
0.8991933
0.9458901
0.9985451
1.0563445
1.1172488
1.1827167
1.2553617
1.3384652
1.4310019
1.530137
1.638839
1.7623099
1.9074624
2.0752614
2.2654986
2.488746
2.7512892
3.0598955
3.4254601
3.8490874
4.3202
4.7784082
5.0302817

0.7826197
0.8234283
0.8678193
0.916244
0.9692294
1.027393
1.091463
1.1623027
1.2409423
1.3286186
1.4268271
1.5373884
1.6625356
1.8050274
1.9682945
2.1566267
2.3753998
2.6313161
2.9325472
3.288381
3.7070168
4.1867209
4.6831079
5.0109546

TIC OPTIONS REPLICATION POSITION

mple in Section 24.14 of Options, Futures and Other Derivatives, 7e
nd Other Derivatives, 7e is based on this application

Return
0

0 = Price
1 = Delta
2 = Gamma
3 = Vega

Portfolio
Value with
this Opt.
0.0000
0.0000
0.0000
0.7303

Portfolio
Value with
this Opt.
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.3907

A better sixteen option hedge

S at which Portfolio
Hedge
value is without this
Time
zero
Opt.
0.745
0.74
0.73
0.72
0.71
0.7
0.68
0.65
0.6
0.55
0.5
0.4
0.3
0.2
0
0

60
60
60
60
60
60
60
60
60
60
60
60
60
60
60
50

10.025
-4.296
-2.928
-1.270
-0.691
-0.437
-0.661
-0.717
-0.807
-0.494
-0.310
-0.460
-0.313
-0.209
-0.328

Hedge Portfolio
Value of
this Opt.

Number
needed to
Hedge

0.523
0.523
0.748
0.748
0.748
0.748
1.076
1.334
1.755
1.755
1.755
2.570
2.570
2.570
3.806

-19.177
8.218
3.914
1.698
0.924
0.585
0.614
0.538
0.460
0.281
0.177
0.179
0.122
0.081
0.086

Type Number K Tmat IsCall

1
1
50 0.750 TRUE
1
-19.177 60 0.750 TRUE
1
8.218 60 0.745 TRUE
1
3.914 60 0.740 TRUE
1
1.698 60 0.730 TRUE
1
0.924 60 0.720 TRUE
1
0.585 60 0.710 TRUE
1
0.614 60 0.700 TRUE
1
0.538 60 0.680 TRUE
1
0.460 60 0.650 TRUE
1
0.281 60 0.600 TRUE
1
0.177 60 0.550 TRUE
1
0.179 60 0.500 TRUE
1
0.122 60 0.400 TRUE
1
0.081 60 0.300 TRUE
1
0.086 60 0.200 TRUE
Hedge Price

Portfolio

Barrier

0.32 0.34 0.36 0.38 0.4 0.42 0.44 0.46 0.48 0.5 0.52 0.54 0.56 0.58 0.6 0.62 0.64 0.66 0.68 0.7 0.72 0.74

Portfolio
Value with
this Opt.
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.3550

TESTS CONVERGENCE OF TRINOMIAL TREE FOR A EUROPEAN BOND OPTION

This carries out calculations for Example 30.1 in Options, Futures, and Other Derivative
Problem 30.26 in Options, Futures, and Other Derivatives, 7e is based on this applica
Term Structure
0.008219 5.018%
0.084932 4.983%
0.169863 4.972%
0.257534 4.962%
0.506849 4.991%
1.005479 5.094%
2.00274
5.797%
3.00274
6.306%
4.00274
6.735%
5.00274
6.948%
6.010959 7.088%
7.008219 7.275%
8.005479 7.309%
9.005479 7.398%
10.00822 7.490%

Time to Ex.
BondLife
Coupon
Principal
Payment Freq

1
9
0.00%
100
2

IsCall
Result

TRUE
0

0.7600
0.7500
0.7400
0.7300
0.7200

Sigma
RevRate
Strike
IsQuotedStrike

1.00%
10.00%
55
FALSE

0.7100
0.7000
0.6900
0

nSteps
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32

Tree
0.7476
0.7413
0.7358
0.7310
0.7268
0.7231
0.7198
0.7168
0.7142
0.7117
0.7095
0.7074
0.7056
0.7038
0.7022
0.7007
0.6992
0.6979
0.6966
0.6955
0.6943
0.6933
0.6938
0.6951
0.6962
0.6972
0.6981
0.6989

Analytic
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997

33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80

0.6996
0.7002
0.7008
0.7013
0.7017
0.7021
0.7025
0.7028
0.7030
0.7033
0.7035
0.7036
0.7038
0.7039
0.7040
0.7041
0.7041
0.7042
0.7042
0.7042
0.7042
0.7042
0.7041
0.7041
0.7041
0.7040
0.7039
0.7039
0.7038
0.7037
0.7036
0.7035
0.7034
0.7033
0.7032
0.7031
0.7030
0.7029
0.7028
0.7027
0.7025
0.7024
0.7023
0.7021
0.7020
0.7019
0.7017
0.7016

0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997
0.6997

A EUROPEAN BOND OPTION

Futures, and Other Derivatives, 7e
s, 7e is based on this application

Trinomial Convergence

Tree
Analytic

20

40
nSteps

60

80