Time Switch Function

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Time Switch Function

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The TimeSwitch function calculates the theoretical price, sensitivities, the implied volatility, and the implied strike value of a European style discrete time switch option using Pechtl’s model. See Multiple Exercise Options for a further explanation.

 

 

TimeSwitch

(OptionType, ModelStatistic, Asset, Strike, TimeExpire, NumTimeUnits, AccruedAmt, TimeInterval, Volatility, InterestRate, YieldRate, MarketPrice, TimeFormat, InterestType, YieldType)

Note: Optional arguments are shown in Italics. MarketPrice is not Optional for the Implied Calculation.

 

 

Argument

Description

OptionType

Alphanumeric value indicating the type of option:

Call = 1 or "c" (case insensitive)

Put = 2 or "p" (case insensitive)

ModelStatistic

Numeric value indicating the type of function required for the return value:

Theoretical = 1

Delta = 2

Gamma = 3

Theta = 4

ImpliedVol = 5

Vega = 6

Rho = 7

Psi = 8

Lambda = 9

StrikeSensitivity = 11

ImpliedStrike = 13

Asset

The price of the underlying asset. Must be > 0.

Strike

The price at which the asset can be purchased if the option is a call or sold if the option is a put. Must be > 0.

TimeExpire

Time, expressed in either Days or Years (depending on the TimeFormat value), until the options expiration.

Must be > 0.

NumTimeUnits

The number of time units where the option has already fulfilled it condition to add a fixed amount.

AccruedAmt

The accrued amount that accumulates for each time interval that the asset price has been below the strike price.

TimeInterval

The time interval that the accrued amount accumulates at.

Volatility

Annualized volatility of the underlying security. Must be > 0.

InterestRate

Risk-free interest rate expressed as a percentage. This rate is interpreted as a continuously compounded rate unless otherwise specified in the InterestType argument. Must be > 0.

YieldRate

Yield, expressed as a percentage (dividends or interest yield), of the underlying asset price. This rate is interpreted as a continuously compounded rate unless specified otherwise in the YieldType argument.

Alpha

The strike price is set equal to Alpha times the asset price at TimeStart (Strike = Alpha*Asset). Must be > 0

MarketPrice

Optional. The selling price of the option in the marketplace. This input is required when implied volatility and strike are calculated. Price must be > 0.

TimeFormat

Optional. Alphanumeric value indicating the format of the time arguments (i.e. TimeExpire). If omitted, Days are used as the default. Specified as either:

Days = 0 or "D" (case insensitive)

Years = 1 or "Y" (case insensitive)

InterestType

Optional. Alphanumeric value indicating the type of InterestRate to use when evaluating the option. This value is converted to Continuously Compounded for the calculations. If omitted, a Continuously Compounded rate is used.

YieldType

Optional. Alphanumeric value indicating the type of YieldRate to use when evaluating the option. This value is converted to Continuously Compounded for the calculations. If omitted, a Continuously Compounded rate is used.

 

 

Example

Calculate all of functions for a discrete time-switch call option with 225 days until maturity, where the investor accumulates $4 each day (TimeInterval = 1) the stock price exceeds the $30 strike price. The current asset price is $36, five time units have passed, the risk-free interest rate is 8% per annum, the yield rate is 5% per annum, and the annual volatility is 20%. All of the rates are considered continuous. So,

 

Input

 

Output

Variable

Value

 

Function

Name

Value

OptionType

Call

 

1

Theoretical:

2.283219

Asset

36

 

2

Delta:

0.048337

Strike

30

 

3

Gamma:

-0.018943

TimeExpire

225

 

4

Theta:

-2.282746

NumTimeUnits

5

 

5

Implied Vol.:

0.356644

AccruedAmt

4

 

6

Vega:

-0.017654

TimeInterval

1

 

7

Rho:

-0.006911

Volatility

20%

 

8

Psi:

-0.007163

InterestRate

8%

 

9

Lambda:

0.762145

YieldRate

5%

 

11

Strike Sensitivity:

-0.058005

MarketPrice

2

 

13

Implied Strike:

32.817601

TimeFormat

Days

 

 

 

 

 

 

See Also

Chooser

Complex Chooser

Compound

Compound Binomial

Executive

Forward Start

Writer Extendible