S30CCF (PDF version)
S Chapter Contents
S Chapter Introduction
NAG Library Manual

NAG Library Routine Document

S30CCF

Note:  before using this routine, please read the Users' Note for your implementation to check the interpretation of bold italicised terms and other implementation-dependent details.

 Contents

    1  Purpose
    7  Accuracy

1  Purpose

S30CCF computes the price of a binary or digital asset-or-nothing option.

2  Specification

SUBROUTINE S30CCF ( CALPUT, M, N, X, S, T, SIGMA, R, Q, P, LDP, IFAIL)
INTEGER  M, N, LDP, IFAIL
REAL (KIND=nag_wp)  X(M), S, T(N), SIGMA, R, Q, P(LDP,N)
CHARACTER(1)  CALPUT

3  Description

S30CCF computes the price of a binary or digital asset-or-nothing option which pays the underlying asset itself, S, at expiration if the option is in-the-money (see Section 2.4 in the S Chapter Introduction). For a strike price, X, underlying asset price, S, and time to expiry, T, the payoff is therefore S, if S>X for a call or S<X for a put. Nothing is paid out when this condition is not met.
The price of a call with volatility, σ, risk-free interest rate, r, and annualised dividend yield, q, is
Pcall = S e-qT Φd1  
and for a put,
Pput = S e-qT Φ-d1  
where Φ is the cumulative Normal distribution function,
Φx = 1 2π - x exp -y2/2 dy ,  
and
d1 = ln S/X + r-q + σ2 / 2 T σT .  
The option price Pij=PX=Xi,T=Tj is computed for each strike price in a set Xi, i=1,2,,m, and for each expiry time in a set Tj, j=1,2,,n.

4  References

Reiner E and Rubinstein M (1991) Unscrambling the binary code Risk 4

5  Parameters

1:     CALPUT – CHARACTER(1)Input
On entry: determines whether the option is a call or a put.
CALPUT='C'
A call; the holder has a right to buy.
CALPUT='P'
A put; the holder has a right to sell.
Constraint: CALPUT='C' or 'P'.
2:     M – INTEGERInput
On entry: the number of strike prices to be used.
Constraint: M1.
3:     N – INTEGERInput
On entry: the number of times to expiry to be used.
Constraint: N1.
4:     XM – REAL (KIND=nag_wp) arrayInput
On entry: Xi must contain Xi, the ith strike price, for i=1,2,,M.
Constraint: Xiz ​ and ​ Xi 1 / z , where z = X02AMF , the safe range parameter, for i=1,2,,M.
5:     S – REAL (KIND=nag_wp)Input
On entry: S, the price of the underlying asset.
Constraint: Sz ​ and ​S1.0/z, where z=X02AMF, the safe range parameter.
6:     TN – REAL (KIND=nag_wp) arrayInput
On entry: Ti must contain Ti, the ith time, in years, to expiry, for i=1,2,,N.
Constraint: Tiz, where z = X02AMF , the safe range parameter, for i=1,2,,N.
7:     SIGMA – REAL (KIND=nag_wp)Input
On entry: σ, the volatility of the underlying asset. Note that a rate of 15% should be entered as 0.15.
Constraint: SIGMA>0.0.
8:     R – REAL (KIND=nag_wp)Input
On entry: r, the annual risk-free interest rate, continuously compounded. Note that a rate of 5% should be entered as 0.05.
Constraint: R0.0.
9:     Q – REAL (KIND=nag_wp)Input
On entry: q, the annual continuous yield rate. Note that a rate of 8% should be entered as 0.08.
Constraint: Q0.0.
10:   PLDPN – REAL (KIND=nag_wp) arrayOutput
On exit: Pij contains Pij, the option price evaluated for the strike price Xi at expiry Tj for i=1,2,,M and j=1,2,,N.
11:   LDP – INTEGERInput
On entry: the first dimension of the array P as declared in the (sub)program from which S30CCF is called.
Constraint: LDPM.
12:   IFAIL – INTEGERInput/Output
On entry: IFAIL must be set to 0, -1​ or ​1. If you are unfamiliar with this parameter you should refer to Section 3.3 in the Essential Introduction for details.
For environments where it might be inappropriate to halt program execution when an error is detected, the value -1​ or ​1 is recommended. If the output of error messages is undesirable, then the value 1 is recommended. Otherwise, if you are not familiar with this parameter, the recommended value is 0. When the value -1​ or ​1 is used it is essential to test the value of IFAIL on exit.
On exit: IFAIL=0 unless the routine detects an error or a warning has been flagged (see Section 6).

6  Error Indicators and Warnings

If on entry IFAIL=0 or -1, explanatory error messages are output on the current error message unit (as defined by X04AAF).
Errors or warnings detected by the routine:
IFAIL=1
On entry, CALPUT=value was an illegal value.
IFAIL=2
On entry, M=value.
Constraint: M1.
IFAIL=3
On entry, N=value.
Constraint: N1.
IFAIL=4
On entry, Xvalue=value.
Constraint: Xivalue and Xivalue.
IFAIL=5
On entry, S=value.
Constraint: Svalue and Svalue.
IFAIL=6
On entry, Tvalue=value.
Constraint: Tivalue.
IFAIL=7
On entry, SIGMA=value.
Constraint: SIGMA>0.0.
IFAIL=8
On entry, R=value.
Constraint: R0.0.
IFAIL=9
On entry, Q=value.
Constraint: Q0.0.
IFAIL=11
On entry, LDP=value and M=value.
Constraint: LDPM.
IFAIL=-99
An unexpected error has been triggered by this routine. Please contact NAG.
See Section 3.8 in the Essential Introduction for further information.
IFAIL=-399
Your licence key may have expired or may not have been installed correctly.
See Section 3.7 in the Essential Introduction for further information.
IFAIL=-999
Dynamic memory allocation failed.
See Section 3.6 in the Essential Introduction for further information.

7  Accuracy

The accuracy of the output is dependent on the accuracy of the cumulative Normal distribution function, Φ. This is evaluated using a rational Chebyshev expansion, chosen so that the maximum relative error in the expansion is of the order of the machine precision (see S15ABF and S15ADF). An accuracy close to machine precision can generally be expected.

8  Parallelism and Performance

S30CCF is threaded by NAG for parallel execution in multithreaded implementations of the NAG Library.
Please consult the X06 Chapter Introduction for information on how to control and interrogate the OpenMP environment used within this routine. Please also consult the Users' Note for your implementation for any additional implementation-specific information.

9  Further Comments

None.

10  Example

This example computes the price of an asset-or-nothing put with a time to expiry of 0.5 years, a stock price of 70 and a strike price of 65. The risk-free interest rate is 7% per year, there is an annual dividend return of 5% and the volatility is 27% per year.

10.1  Program Text

Program Text (s30ccfe.f90)

10.2  Program Data

Program Data (s30ccfe.d)

10.3  Program Results

Program Results (s30ccfe.r)


S30CCF (PDF version)
S Chapter Contents
S Chapter Introduction
NAG Library Manual

© The Numerical Algorithms Group Ltd, Oxford, UK. 2015