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Functions and CALL Routines

MARGRPTPRC Function



Calculates put prices for European options on stocks, based on the Margrabe model.
Category: Financial

Syntax
Arguments
Details
Comparisons
Examples
See Also

Syntax

MARGRPTPRC(X1, t, X2, sigma1, sigma2, rho12)


Arguments

X1

is a non-missing, positive value that specifies the price of the first asset.

Requirement: Specify X1 and X2 in the same units.
t

is a non-missing value that specifies the time to expiration.

X2

is a non-missing, positive value that specifies the price of the second asset.

Requirement: Specify X2 and X1 in the same units.
sigma1

is a non-missing, positive fraction that specifies the volatility of the first asset.

Requirement: sigma1 must be for the same time period as the unit of t.
sigma2

is a non-missing, positive fraction that specifies the volatility of the second asset.

Requirement: Specify a value for sigma2 for the same time period as the unit of t.
rho12

specifies the correlation between the first and second assets, [equation].

Range: between -1 and 1

Details

The MARGRPTPRC function calculates the put price for European options on stocks, based on the Margrabe model. The function is based on the following relationship:

[equation]

where

X1

specifies the price of the first asset.

X2

specifies the price of the second asset.

N

specifies the cumulative normal density function.

[equation]

where

t

is a non-missing value that specifies the time to expiration.

[equation]

specifies the variance of the first asset.

[equation]

specifies the variance of the second asset.

[equation]

specifies the volatility of the first asset.

[equation]

specifies the volatility of the second asset.

[equation]

specifies the correlation between the first and second assets.

To view the corresponding CALL relationship, see the MARGRCLPRC Function.

For the special case of t=0, the following equation is true:

[equation]

Note:   This function assumes that there are no dividends from the two assets.  [cautionend]

For basic information about pricing, see Using Pricing Functions.


Comparisons

The MARGRPTPRC function calculates the put price for European options on stocks, based on the Margrabe model. The MARGRCLPRC function calculates the call price for European options on stocks, based on the Margrabe model. These functions return a scalar value.


Examples

SAS Statements Results

----+----1----+----2--
a=margrptprc(500, .5, 950, 4, 5, 1);
put a;
496.44128364
b=margrptprc(850, 1.2, 125, 5, 3, 1);
put b;
52.670081846
c=margrptprc(7500, .9, 950, 3, 2, 1);
put c;
12.035488581
d=margrptprc(5000, -.5, 237, 3, 3, 1);
put d;
           0


See Also

Functions:

MARGRCLPRC Function

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