Main Content

optstocksensbybjs

Determine American option prices or sensitivities using Bjerksund-Stensland 2002 option pricing model

collapse all in page

Syntax

PriceSens = optstocksensbybjs(RateSpec,StockSpec,Settle,Maturity,OptSpec,Strike)
PriceSens = optstocksensbybjs(___,Name,Value)

Description

example

PriceSens = optstocksensbybjs(RateSpec,StockSpec,Settle,Maturity,OptSpec,Strike) computes American option prices or sensitivities using the Bjerksund-Stensland 2002 option pricing model.

optstocksensbybjs computes prices of American options with continuous dividend yield using the Bjerksund-Stensland option pricing model. All sensitivities are evaluated by computing a discrete approximation of the partial derivative. This means that the option is revalued with a fractional change for each relevant parameter, and the change in the option value divided by the increment, is the approximated sensitivity value.

Note

Alternatively, you can use the Vanilla object to calculate price or sensitivities for vanilla options. For more information, see Get Started with Workflows Using Object-Based Framework for Pricing Financial Instruments.

PriceSens = optstocksensbybjs(___,Name,Value) adds an optional name-value pair argument for OutSpec.

Examples

collapse all

Open Live Script

This example shows how to compute American option prices and sensitivities using the Bjerksund-Stensland 2002 option pricing model. Consider four American put options with an exercise price of $100. The options expire on October 1, 2008. Assume the underlying stock pays a continuous dividend yield of 4% and has a volatility of 40% per annum. The annualized continuously compounded risk-free rate is 8% per annum. Using this data, calculate the delta, gamma, and price of the American put options, assuming the following current prices of the stock on July 1, 2008: $90, $100, $110 and $120.

Settle = datetime(2008,6,1);
Maturity = datetime(2008,10,1);
Strike = 100;
AssetPrice = [90;100;110;120];
Rate = 0.08;
Sigma = 0.40;
DivYield = 0.04;

% define the RateSpec and StockSpec
StockSpec = stockspec(Sigma, AssetPrice, {'continuous'}, DivYield);

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

% define the option type
OptSpec = {'put'};

OutSpec = {'Delta', 'Gamma', 'Price'};

[Delta, Gamma, Price] = optstocksensbybjs(RateSpec, StockSpec, Settle, Maturity,...
OptSpec, Strike, 'OutSpec', OutSpec)
Delta = 4×1

   -0.6236
   -0.4351
   -0.2794
   -0.1673


Gamma = 4×1

    0.0196
    0.0176
    0.0134
    0.0091


Price = 4×1

   13.7594
    8.4830
    4.9451
    2.7475

Input Arguments

collapse all

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

Stock specification for the underlying asset. For information on the stock specification, see stockspec.

stockspec handles several types of underlying assets. For example, for physical commodities the price is StockSpec.Asset, the volatility is StockSpec.Sigma, and the convenience yield is StockSpec.DividendAmounts.

Data Types: struct

Settlement or trade date, specified as a NINST-by-1 vector using a datetime array, string array, or date character vectors.

To support existing code, optstocksensbybjs also accepts serial date numbers as inputs, but they are not recommended.

Maturity date for option, specified as a NINST-by-1 vector using a datetime array, string array, or date character vectors.

To support existing code, optstocksensbybjs also accepts serial date numbers as inputs, but they are not recommended.

Definition of the option as 'call' or 'put', specified as a NINST-by-1 cell array of character vectors with values 'call' or 'put'.

Data Types: char | cell

Option strike price value, specified as a nonnegative NINST-by-1 vector.

Data Types: double

Name-Value Arguments

Specify optional pairs of arguments as Name1=Value1,...,NameN=ValueN, where Name is the argument name and Value is the corresponding value. Name-value arguments must appear after other arguments, but the order of the pairs does not matter.

Before R2021a, use commas to separate each name and value, and enclose Name in quotes.

Example: [Delta,Gamma,Price] = optstocksensbybjs(RateSpec,StockSpec,Settle,Maturity,OptSpec,Strike,'OutSpec',OutSpec)

Define outputs, specified as the comma-separated pair consisting of 'OutSpec' and a NOUT- by-1 or 1-by-NOUT cell array of character vectors with possible values of 'Price', 'Delta', 'Gamma', 'Vega', 'Lambda', 'Rho', 'Theta', and 'All'.

OutSpec = {'All'} specifies that the output should be Delta, Gamma, Vega, Lambda, Rho, Theta, and Price, in that order. This is the same as specifying OutSpec to include each sensitivity:

Example: OutSpec = {'delta','gamma','vega','lambda','rho','theta','price'}

Data Types: char | cell

Output Arguments

collapse all

Expected future prices or sensitivities values, returned as a NINST-by-1 vector.

Data Types: double

More About

collapse all

Vanilla Option

A vanilla option is a category of options that includes only the most standard components.

A vanilla option has an expiration date and straightforward strike price. American-style options and European-style options are both categorized as vanilla options.

The payoff for a vanilla option is as follows:

  • For a call: max(St−K,0)

  • For a put: max(K−St,0)

where:

St is the price of the underlying asset at time t.

K is the strike price.

For more information, see Vanilla Option.

References

[1] Bjerksund, P. and G. Stensland. “Closed-Form Approximation of American Options.” Scandinavian Journal of Management. Vol. 9, 1993, Suppl., pp. S88–S99.

[2] Bjerksund, P. and G. Stensland. “Closed Form Valuation of American Options.” Discussion paper, 2002.

Version History

Introduced in R2008b

expand all

See Also

| | | |

Topics