Calculate the constant elasticity of variance (CEV) model option price

Usage

CevPrice(
  strike = forward,
  spot,
  texp = 1,
  sigma,
  beta = 0.5,
  intr = 0,
  divr = 0,
  cp = 1L,
  forward = spot * exp(-divr * texp)/df,
  df = exp(-intr * texp)
)

Arguments

strike: (vector of) strike price
spot: (vector of) spot price
texp: (vector of) time to expiry
sigma: (vector of) volatility
beta: elasticity parameter
intr: interest rate (domestic interest rate)
divr: dividend/convenience yield (foreign interest rate)
cp: call/put sign. 1 for call, -1 for put.
forward: forward price. If given, forward overrides spot
df: discount factor. If given, df overrides intr

Value

option price

References

Schroder, M. (1989). Computing the constant elasticity of variance option pricing formula. Journal of Finance, 44(1), 211-219. doi:10.1111/j.1540-6261.1989.tb02414.x

Examples

spot <- 100
strike <- seq(80,125,5)
texp <- 1.2
beta <- 0.5
sigma <- 2
FER::CevPrice(strike, spot, texp, sigma, beta)
#>  [1] 21.842983 17.934619 14.421747 11.346284  8.727247  6.559546  4.816426
#>  [8]  3.454585  2.420594  1.657276