approximate_option_pricing英文学习资料 .pdfVIP

Approximate Option Pricing for At-the-Money Forwards Bob Kopprasch This simple model, shown to me in the mid-80’s, can be used to price puts and calls when they are struck at the forward price of any instrument. [Because puts and calls struck at the forward price have the same value, the model is able to value either puts or calls.] After pricing an at-the-money forward, it’s easy to estimate in- or out-of the money prices as well, Option Value = PresentValue of (.4 * σ *√t * ForwardPrice) The volatility is expressed as an annualized number, in decimal form, and time is measured in years (3 months = 1/4, etc.) The “model” can be used to price at the money options on futures, because futures are already at their “forward price.” As an example, consider the March options on the March 2010 10-year Note futures contract, which, as shown in the Bloomberg screenshot that follows, has 71 days till expiration. On the morning of Dec. 10, 2009, the contract was priced at 118-10+ (118-10.5/32), and the 118.5 calls had an implied volatility of 6.39%. Let’s see how the model does in matching the market prices for the 118.5 strike options. First, lets assume for a minute that the contract had closed at 118-16, so that the price and strike are the same. The value under that assumption would be: PV(.4 x .0639 x √ (71/365) * 118.5 ) = PV (.02556 * √.19452 * 118.5) = PV(1.33586) With both 2 and 3 month LIBOR at about 24 basis points right now, present valuing over 72 days will hardly have any effect, but for practice, let’s calculate it: PV(1.33586) = 1.33586/(1+.0024*71/360) = 1.3352. This translates to 1-21.45/64. On the Bloomberg screen, note that the “Last” price is 1’14, and the bid/offer is 1’13/1’16, but we haven’t yet adjusted for the fact that the contract is not at 118.5. We have to make an adjustment for the fact that the futures closed at 118.33, not 118.50. Think of the problem this way: we just priced the at-the-money option when the