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Learning Quantitative Finance with R

You're reading from Learning Quantitative Finance with R

Product type Book

Published in Mar 2017

Publisher Packt

ISBN-13 9781786462411

Pages 284 pages

Edition 1st Edition

Languages

Concepts

Financial Technology

Authors (2):

Dr. Param Jeet

PRASHANT VATS

View More author details

Table of Contents (16) Chapters

Learning Quantitative Finance with R

Credits

About the Authors

About the Reviewer

www.PacktPub.com

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Preface

1. Introduction to R

2. Statistical Modeling

3. Econometric and Wavelet Analysis

4. Time Series Modeling

5. Algorithmic Trading

6. Trading Using Machine Learning

7. Risk Management

8. Optimization

9. Derivative Pricing

Option pricing

The binomial model works with the continuous process, while the Cox-Ross-Rubinstein model works with the discrete process. Option price depends upon stock price, strike price, interest rates, volatility, and time to expiry. We will use the package fOption for the Black-Scholes model. The following commands install and load this into the workspace:

> install.packages("fOptions") 
> library(fOptions)

Black-Scholes model

Let us consider an example of call and put options using hypothetical data in June 2015 with a maturity of September 2015, that is, 3 months to time to maturity. Assume that the current price of the underlying stock is USD 900, the strike price is USD 950, the volatility is 22%, and the risk-free rate is 2%. We also have to set the cost of carry (b); in the original Black-Scholes model (with underlying paying no dividends), it equals the risk-free rate.

The following command GBSOption() calculates the call option price using all other parameters. The first...

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Authors (2)

Dr. Param Jeet

Dr. Param Jeet is a Ph.D. in mathematics from one of India's leading technological institute in Madras (IITM), India. Dr. Param Jeet has a couple of mathematical research papers published in various international journals. Dr. Param Jeet has been into the analytics industry for the last few years and has worked with various leading multinational companies as well as consulted few of companies as a data scientist.

See other products by Dr. Param Jeet

PRASHANT VATS

Prashant Vats is a masters in mathematics from one of India's leading technological institute, IIT Mumbai. Prashant has been into analytics industry for more than 10 years and has worked with various leading multinational companies as well as consulted few of companies as data scientist across several domain.

See other products by PRASHANT VATS

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