Exchange options on Exchange Options.
1=Option to exchange Q*S2 for the option to exchange S2 for S1, 2=Option to exchange the option to exchange S2 for S1 in return for Q*S2, 3=Option to exchange Q*S2 for the option to exchange S1 for S2, 4=Option to exchange the option to exchange S1 for S2 in return for Q*S2 . This function utilizes an analytical (closed-form) algorithm.
Note that the risk (greek) numbers produced are the mathematically defined equivalent of a derivative (instantaneous change).
You can convert the risk number to your own definition of risk by multiplying by the shift you require.
For example, for a typical definition of VANNA, (change in underlying and volatility), where one defines the change in the underlying as a single unit of change (1.0) and the change in volatility as a one percent change (0.01), simply multiply the VANNA result calculated by (1.0*0.01).
For VEGA, change in volatility of one percent (0.01), simply multiply the VEGA result by 0.01. Within option contracts THETA is negative, however the mathematically defined equivalent of THETA (instantaneous FORWARD change in time) is positive.
Internally we have negated this value for you.
To express THETA as THETA per day, simply multiply the THETA result by 1/365 or 1/252 (depending on whether you require calendar days or business days).
This function returns a partial derivative matrix of all second order derivatives (Hessian matrix).
Each individual second order derivative as well as the first order derivatives can be obtained, individually, via the pricing functions present within the
CapeTools Exotic Options category of functions.
However this function computes all the second order risk numbers in a single function call.
- ValueDate parameter
Valuation Date (typically equal to Today's date)
- dayCounter parameter
For any input parameter within this function that represents a dividend rate, risk free rate, foreign rate or holding cost rate, these rates will be defined as annually compounded using the DayCounter defined within this parameter. Thus if 'actual365' is used for this 'dayCounter' parameter, then all input parameters that represent a dividend, risk free, foreign or holding cost rates will be defined as annually compounded Actual365 rates.
- OptionType parameter
Integer value (1 - 4) indicating option type.
- Underlying1 parameter
Price of the first underlying
- Underlying2 parameter
Price of the second underlying
- Q parameter
Quantity of the second underlying S2.
- Timet1 parameter
Time to expiration of the original option.
- TimeT parameter
Time to expiration of the underlying option, (greater than dTimet1).
- Rate parameter
For the underlying (equity, futures, FX or commodity), this should be an annualised rate (risk free rate or foreign rate). If this is an option on a FX underlying, then if the underlying is quoted as domestic/foreign then this rate will be the domestic rate. If, however, the FX underlying is quoted as foreign/domestic then this will be the foreign rate.
- b1 parameter
For the first underlying (equity, futures, FX or commodity), this should be an annualised rate (dividend rate, risk free rate, foreign rate or holding cost rate respectively). If this is an option on a FX underlying, then if the underlying is quoted as domestic/foreign then this rate will be the foreign rate. If, however, the FX underlying is quoted as foreign/domestic then this will be the domestic rate.
- b2 parameter
For the second underlying (equity, futures, FX or commodity), this should be an annualised rate (dividend rate, risk free rate, foreign rate or holding cost rate respectively). If this is an option on a FX underlying, then if the underlying is quoted as domestic/foreign then this rate will be the foreign rate. If, however, the FX underlying is quoted as foreign/domestic then this will be the domestic rate.
- Vol1 parameter
Volatility of the underlying UnderlyingS1.
- Vol2 parameter
Volatility of the underlying UnderlyingS2.
- Rho parameter
Correlation between the two assets.
The C# example below contains all the sub-function calls leading up to this function call. As a result, the example can contain a lot of code.
The VB.NET, J#, C++.NET, Java, Excel VBA, Visual Basic 6 (via COM) and C++ examples below contain function code stubs for the calls leading up to this function call. However, the function call for this function is displayed.
You can easily reproduce the stub functions code from the
C# example.
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Function Syntax