The Black Scholes model estimates the value of a European call or put option by using the following parameters: S = Stock Price K = Strike Price at Expiration r = Risk-free Interest Rate T = Time to Expiration sig = Volatility of the Underlying asset Using R, we can write a function to compute […]

# Derivatives with R

## Binomial Option Pricing Model in R

In the binomial option pricing model, the value of an option at expiration time is represented by the present value of the future payoffs from owning the option. The main principle of the binomial model is that the option price pattern is related to the stock price pattern. In this post, we will learn about […]

## Understanding Options Greeks

In order to have a deep understanding of how option prices are determined, we need to focus on the response of option prices to the factors that determine its price. As we noted above, the price of an European Option is determined by the price of the underlying stock, the exercise or strike price of […]

## Options Strategy: Create Bull Call Spread with R Language

Bull Call Spread is an options trading strategy that involves the purchase of two call options with the same expiration and different strike prices. In the strategy, the trader buys one call option with a lower strike price and sells another call option with a higher strike price. Both calls have the same underlying security. […]

## Options Strategy: Create Long Straddle with R Language

The Long Straddle is an options trading strategy that involves going long on a call option and a put option with the same underlying asset, same expiration and same strike price. This strategy tries to gain profits due to volatility in either direction as the strategy wins when the price movement is significant in any […]