NAG Library Routine Document

S30CBF

1  Purpose

2  Specification

3  Description

4  References

5  Parameters

1:     CALPUT – CHARACTER(1)Input

On entry: determines whether the option is a call or a put.

$\mathbf{CALPUT}=\text{'C'}$

A call. The holder has a right to buy.

$\mathbf{CALPUT}=\text{'P'}$

A put. The holder has a right to sell.

Constraint: $\mathbf{CALPUT}=\text{'C'}$ or $\text{'P'}$.

2:     M – INTEGERInput

On entry: the number of strike prices to be used.

Constraint: $\mathbf{M}\ge 1$.

3:     N – INTEGERInput

On entry: the number of times to expiry to be used.

Constraint: $\mathbf{N}\ge 1$.

4:     X(M) – REAL (KIND=nag_wp) arrayInput

On entry: $\mathbf{X}\left(i\right)$ must contain $X_{\mathit{i}}$, the $\mathit{i}$th strike price, for $\mathit{i}=1,2,\dots ,\mathbf{M}$.

Constraint: $\mathbf{X}\left(\mathit{i}\right)\ge z\text{ and }\mathbf{X}\left(\mathit{i}\right)\le 1/z$, where $z=\mathbf{X02AMF}\left(\right)$, the safe range parameter, for $\mathit{i}=1,2,\dots ,\mathbf{M}$.

5:     S – REAL (KIND=nag_wp)Input

On entry: $S$, the price of the underlying asset.

Constraint: $\mathbf{S}\ge z\text{ and }\mathbf{S}\le 1.0/z$, where $z=\mathbf{X02AMF}\left(\right)$, the safe range parameter.

6:     K – REAL (KIND=nag_wp)Input

On entry: the amount, $K$, to be paid at expiration if the option is in-the-money, i.e., if $\mathbf{S}>\mathbf{X}\left(\mathit{i}\right)$ when $\mathbf{CALPUT}=\text{'C'}$, or if $\mathbf{S}<\mathbf{X}\left(\mathit{i}\right)$ when $\mathbf{CALPUT}=\text{'P'}$, for $\mathit{i}=1,2,\dots ,m$.

Constraint: $\mathbf{K}\ge 0.0$.

7:     T(N) – REAL (KIND=nag_wp) arrayInput

On entry: $\mathbf{T}\left(i\right)$ must contain $T_{\mathit{i}}$, the $\mathit{i}$th time, in years, to expiry, for $\mathit{i}=1,2,\dots ,\mathbf{N}$.

Constraint: $\mathbf{T}\left(\mathit{i}\right)\ge z$, where $z=\mathbf{X02AMF}\left(\right)$, the safe range parameter, for $\mathit{i}=1,2,\dots ,\mathbf{N}$.

8:     SIGMA – REAL (KIND=nag_wp)Input

On entry: $\sigma$, the volatility of the underlying asset. Note that a rate of 15% should be entered as 0.15.

Constraint: $\mathbf{SIGMA}>0.0$.

9:     R – REAL (KIND=nag_wp)Input

On entry: $r$, the annual risk-free interest rate, continuously compounded. Note that a rate of 5% should be entered as 0.05.

Constraint: $\mathbf{R}\ge 0.0$.

10:   Q – REAL (KIND=nag_wp)Input

On entry: $q$, the annual continuous yield rate. Note that a rate of 8% should be entered as 0.08.

Constraint: $\mathbf{Q}\ge 0.0$.

11:   P(LDP,N) – REAL (KIND=nag_wp) arrayOutput

On exit: the leading $\mathbf{M}\times \mathbf{N}$ part of the array P contains the computed option prices.

12:   LDP – INTEGERInput

On entry: the first dimension of the arrays P, DELTA, GAMMA, VEGA, THETA, RHO, CRHO, VANNA, CHARM, SPEED, COLOUR, ZOMMA and VOMMA as declared in the (sub)program from which S30CBF is called.

Constraint: $\mathbf{LDP}\ge \mathbf{M}$.

13:   DELTA(LDP,N) – REAL (KIND=nag_wp) arrayOutput

On exit: the leading $\mathbf{M}\times \mathbf{N}$ part of the array DELTA contains the sensitivity, $\frac{\partial P}{\partial S}$, of the option price to change in the price of the underlying asset.

14:   GAMMA(LDP,N) – REAL (KIND=nag_wp) arrayOutput

On exit: the leading $\mathbf{M}\times \mathbf{N}$ part of the array GAMMA contains the sensitivity, $\frac{{\partial }^{2}P}{\partial S^2}$, of DELTA to change in the price of the underlying asset.

15:   VEGA(LDP,N) – REAL (KIND=nag_wp) arrayOutput

On exit: the leading $\mathbf{M}\times \mathbf{N}$ part of the array VEGA contains the sensitivity, $\frac{\partial P}{\partial \sigma }$, of the option price to change in the volatility of the underlying asset.

16:   THETA(LDP,N) – REAL (KIND=nag_wp) arrayOutput

On exit: the leading $\mathbf{M}\times \mathbf{N}$ part of the array THETA contains the sensitivity, $-\frac{\partial P}{\partial T}$, of the option price to change in the time to expiry of the option.

17:   RHO(LDP,N) – REAL (KIND=nag_wp) arrayOutput

On exit: the leading $\mathbf{M}\times \mathbf{N}$ part of the array RHO contains the sensitivity, $\frac{\partial P}{\partial r}$, of the option price to change in the annual risk-free interest rate.

18:   CRHO(LDP,N) – REAL (KIND=nag_wp) arrayOutput

On exit: the leading $\mathbf{M}\times \mathbf{N}$ part of the array CRHO containing the sensitivity, $\frac{\partial P}{\partial b}$, of the option price to change in the annual cost of carry rate, $b$, where $b=r-q$.

19:   VANNA(LDP,N) – REAL (KIND=nag_wp) arrayOutput

On exit: the leading $\mathbf{M}\times \mathbf{N}$ part of the array VANNA contains the sensitivity, $\frac{{\partial }^{2}P}{\partial S\partial \sigma }$, of VEGA to change in the price of the underlying asset or, equivalently, the sensitivity of DELTA to change in the volatility of the asset price.

20:   CHARM(LDP,N) – REAL (KIND=nag_wp) arrayOutput

On exit: the leading $\mathbf{M}\times \mathbf{N}$ part of the array CHARM contains the sensitivity, $-\frac{{\partial }^{2}P}{\partial S\partial T}$, of DELTA to change in the time to expiry of the option.

21:   SPEED(LDP,N) – REAL (KIND=nag_wp) arrayOutput

On exit: the leading $\mathbf{M}\times \mathbf{N}$ part of the array SPEED contains the sensitivity, $\frac{{\partial }^{3}P}{\partial S^3}$, of GAMMA to change in the price of the underlying asset.

22:   COLOUR(LDP,N) – REAL (KIND=nag_wp) arrayOutput

On exit: the leading $\mathbf{M}\times \mathbf{N}$ part of the array COLOUR contains the sensitivity, $-\frac{{\partial }^{3}P}{\partial S^2\partial T}$, of GAMMA to change in the time to expiry of the option.

23:   ZOMMA(LDP,N) – REAL (KIND=nag_wp) arrayOutput

On exit: the leading $\mathbf{M}\times \mathbf{N}$ part of the array ZOMMA contains the sensitivity, $\frac{{\partial }^{3}P}{\partial S^2\partial \sigma }$, of GAMMA to change in the volatility of the underlying asset.

24:   VOMMA(LDP,N) – REAL (KIND=nag_wp) arrayOutput

On exit: the leading $\mathbf{M}\times \mathbf{N}$ part of the array VOMMA contains the sensitivity, $\frac{{\partial }^{2}P}{\partial {\sigma }^2}$, of VEGA to change in the volatility of the underlying asset.

25:   IFAIL – INTEGERInput/Output

On entry: IFAIL must be set to $0$, $-1\text{ or }1$. If you are unfamiliar with this parameter you should refer to Section 3.3 in the Essential Introduction for details.

For environments where it might be inappropriate to halt program execution when an error is detected, the value $-1\text{ or }1$ is recommended. If the output of error messages is undesirable, then the value $1$ is recommended. Otherwise, if you are not familiar with this parameter, the recommended value is $0$. When the value $-\mathbf{1}\text{ or }\mathbf{1}$ is used it is essential to test the value of IFAIL on exit.

On exit: $\mathbf{IFAIL}=\mathbf{0}$ unless the routine detects an error or a warning has been flagged (see Section 6).

6  Error Indicators and Warnings

$\mathbf{IFAIL}=1$

On entry, $\mathbf{CALPUT}\ne \text{'C'}$ or $\text{'P'}$.

$\mathbf{IFAIL}=2$

On entry, $\mathbf{M}\le 0$.

$\mathbf{IFAIL}=3$

On entry, $\mathbf{N}\le 0$.

$\mathbf{IFAIL}=4$

On entry, $\mathbf{X}\left(\mathit{i}\right)<z$ or $\mathbf{X}\left(\mathit{i}\right)>1/z$, where $z=\mathbf{X02AMF}\left(\right)$, the safe range parameter.

$\mathbf{IFAIL}=5$

On entry, $\mathbf{S}<z$ or $\mathbf{S}>1.0/z$, where $z=\mathbf{X02AMF}\left(\right)$, the safe range parameter.

$\mathbf{IFAIL}=6$

On entry, $\mathbf{K}<0.0$.

$\mathbf{IFAIL}=7$

On entry, $\mathbf{T}\left(\mathit{i}\right)<z$, where $z=\mathbf{X02AMF}\left(\right)$, the safe range parameter.

$\mathbf{IFAIL}=8$

On entry, $\mathbf{SIGMA}\le 0.0$.

$\mathbf{IFAIL}=9$

On entry, $\mathbf{R}<0.0$.

$\mathbf{IFAIL}=10$

On entry, $\mathbf{Q}<0.0$.

$\mathbf{IFAIL}=12$

On entry, $\mathbf{LDP}<\mathbf{M}$.

7  Accuracy

8  Further Comments

9  Example

9.1  Program Text

Program Text (s30cbfe.f90)

9.2  Program Data

Program Data (s30cbfe.d)

9.3  Program Results

Program Results (s30cbfe.r)