Writer Extendible Function

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Writer Extendible Function

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The WriterExtendible function calculates the theoretical price, sensitivities, the implied volatility, and the implied strike value of a European style writer extendible option using Longstaff’s model. See Multiple Exercise Options for a further explanation.

 

 

WriterExtendible

(OptionType, ModelStatistic, Asset, StrikeInitial, StrikeExtended, TimeInitial, TimeExtended, Volatility, InterestRate, YieldRate, MarketPrice, TimeFormat)

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

 

 

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

InitialStrikeSensativity = 18

InitialImpliedStrike = 19

ExtendedStrikeSensativity = 20

ExtendedImpliedStrike = 21

Asset

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

StrikeInitial

The strike price of the initial option. Must be > 0.

StrikeExtended

The strike price of the extended option. Must be > 0.

TimeInitial

Time, expressed in either Days or Years (depending on the TimeFormat value), until the initial expiration of the option. Must be > 0.

TimeExtended

Time, expressed in either Days or Years (depending on the TimeFormat value), until the extended expiration of the option. Must be > 0.

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. 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.

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)

 

 

Example

Calculate all of functions for a writer extendible call option with the original time to expiration 80 days, which will be extended 80 days if the option is out-of-the money at the original time. The asset price is $38 and the initial exercise price is $40. If the option is extended the price is adjusted to $50. The risk-free interest rate is 6% per annum, the yield rate is 4% per annum, and the annual volatility is 30%. So,

 

Input

 

Output

Variable

Value

 

Function

Name

Value

OptionType

Call

 

1

Theoretical:

1.396428

Asset

38

 

2

Delta:

0.392833

StrikeInitial

40

 

3

Gamma:

0.070835

StrikeExtended

50

 

4

Theta:

-0.013200

TimeInitial

80

 

5

Implied Vol.:

0.314363

TimeExtended

160

 

6

Vega:

0.071693

Volatility

30%

 

7

Rho:

0.030536

InterestRate

6%

 

8

Psi:

-0.033646

YieldRate

4%

 

9

Lambda:

10.689896

MarketPrice

1.5

 

18

Initial Strike Sens:

-0.328257

TimeFormat

Days

 

19

Initial Implied Strike:

39.694241

 

 

 

20

Extended Strike Sens:

-0.008019

 

 

 

21

Extended Implied Strike:

44.859197

 

 

See Also

Chooser

Complex Chooser

Compound

Compound Binomial

Executive

Forward Start

Time Switch