asianbytw

Price European arithmetic fixed Asian options using Turnbull-Wakeman model

Syntax

Price = asianbytw(RateSpec,StockSpec,OptSpec,Strike,Settle,ExerciseDates)

Price = asianbytw(___,Name,Value)

Description

Price = asianbytw(RateSpec,StockSpec,OptSpec,Strike,Settle,ExerciseDates) prices European arithmetic fixed Asian options using the Turnbull-Wakeman model.

Price = asianbytw(___,Name,Value) adds optional name-value pair arguments.

Examples

Price an Asian Option with Averaging Period Before the Settle Date

Define the Asian option parameters.

AssetPrice = 100;
Strike = 95;
Rates = 0.1;
Sigma = 0.15;
Settle = 'Apr-1-2013';
Maturity = 'Oct-1-2013';

Create a RateSpec using the intenvset function.

 RateSpec = intenvset('ValuationDate', Settle, 'StartDates', Settle, 'EndDates', ...
 Maturity, 'Rates', Rates, 'Compounding', -1, 'Basis', 1);

Create a StockSpec for the underlying asset using the stockspec function.

DividendType = 'Continuous';
DividendAmounts = 0.05;

StockSpec = stockspec(Sigma, AssetPrice, DividendType, DividendAmounts);

Calculate the price of the Asian option using the Turnbull-Wakeman approximation. Assume that the averaging period has started before the Settle date.

OptSpec = 'Call';
ExerciseDates = 'Oct-1-2013';
AvgDate = 'Jan-1-2013';
AvgPrice = 100;

Price = asianbytw(RateSpec,StockSpec,OptSpec,Strike,Settle,ExerciseDates, ...
'AvgDate',AvgDate,'AvgPrice',AvgPrice)

Price = 5.6731

Price an Asian Option with Averaging Period After the Settle Date

Define the Asian option parameters.

AssetPrice = 100;
Strike = 95;
Rates = 0.1;
Sigma = 0.15;
Settle = 'Apr-1-2013';
Maturity = 'Oct-1-2013';

Create a RateSpec using the intenvset function.

 RateSpec = intenvset('ValuationDate', Settle, 'StartDates', Settle, 'EndDates', ...
 Maturity, 'Rates', Rates, 'Compounding', -1, 'Basis', 1);

Create a StockSpec for the underlying asset using the stockspec function.

DividendType = 'Continuous';
DividendAmounts = 0.05;

StockSpec = stockspec(Sigma, AssetPrice, DividendType, DividendAmounts);

Calculate the price of the Asian option using the Turnbull-Wakeman approximation. Assume that the averaging period starts after the Settle date.

OptSpec = 'Call';
ExerciseDates = 'Oct-1-2013';
AvgDate = 'Jan-1-2013';

Price = asianbytw(RateSpec,StockSpec,OptSpec,Strike,Settle,ExerciseDates, ...
'AvgDate',AvgDate)

Price = 1.0774e-08

Input Arguments

RateSpec — Interest-rate term structure

structure

Interest-rate term structure (annualized and continuously compounded), specified by the RateSpec obtained from intenvset. For information on the interest-rate specification, see intenvset.

Data Types: struct

StockSpec — Stock specification for underlying asset

structure

Stock specification for underlying asset, specified using StockSpec obtained from stockspec. For information on the stock specification, see stockspec.

stockspec can handle other types of underlying assets. For example, stocks, stock indices, and commodities. If dividends are not specified in StockSpec, dividends are assumed to be 0.

Data Types: struct

OptSpec — Definition of option

character vector with value 'call' or 'put' | cell array of character vectors with values 'call' or 'put' | string array with values "call" or "put"

Definition of option, specified as 'call' or 'put' using a character vector, cell array of character vectors, or string array.

Data Types: char | cell | string

Strike — Option strike price value

nonnegative integer | vector of nonnegative integer

Option strike price value, specified with a nonnegative integer using a NINST-by-1 vector of strike price values.

Data Types: double

Settle — Settlement dates or trade dates

serial date number | date character vector | datetime | string array

Settlement date or trade date for the Asian option, specified as a NINST-by-1 vector using serial date numbers, date character vectors, datetimes, or string arrays.

Data Types: double | char | datetime | string

ExerciseDates — European option exercise dates

serial date number | date character vector | datetime | string array

European option exercise dates, specified as a NINST-by-1 vector using serial date numbers, date character vectors, datetimes, or string arrays.

Note

For a European option, there is only one ExerciseDates on the option expiry date.

Data Types: double | char | datetime | string

Name-Value Arguments

Specify optional comma-separated pairs of Name,Value arguments. Name is the argument name and Value is the corresponding value. Name must appear inside quotes. You can specify several name and value pair arguments in any order as Name1,Value1,...,NameN,ValueN.

Example: Price = asianbytw(RateSpec,StockSpec,OptSpec,Strike,Settle,ExerciseDates,'AvgPrice',1500)

AvgPrice — Average price of underlying asset at the Settle date

vector

Average price of underlying asset at the Settle date, specified as the comma-separated pair consisting of 'AvgPrice' and a NINST-by-1 vector.

Note

Use the AvgPrice argument when AvgDate < Settle.

Data Types: double

AvgDate — Date averaging period begins

serial date number | date character vector | datetime | string array

Date averaging period begins, specified as the comma-separated pair consisting of 'AvgDate' and a NINST-by-1 vector using serial date numbers, date character vectors, datetimes, or string arrays.

Data Types: char | double | datetime | string

Output Arguments

Price — Expected prices for fixed Asian options

vector

Expected prices for Asian options, returned as a NINST-by-1 vector.

More About

Asian Option

An Asian option is a path-dependent option with a payoff linked to the average value of the underlying asset during the life (or some part of the life) of the option.

Asian options are similar to lookback options in that there are two types of Asian options: fixed (average price option) and floating (average strike option). Fixed Asian options have a specified strike, while floating Asian options have a strike equal to the average value of the underlying asset over the life of the option. For more information, see Asian Option.

References

[1] Turnbull, S. M. and L. M. Wakeman. "A Quick Algorithm for Pricing European Average Options."Journal of Financial and Quantitative Analysis Vol. 26(3).1991, pp. 377-389.