Option Price Calculator 

 

Use

To calculate the value of the Option premium, you can directly link to the option price calculator during input:

You can also use the option price calculator to perform market data calculations for Currency options.

The option price calculator also delivers the important sensitivities of the respective option alongside the premium. The option premium can be used in the entry screens as a percentage rate of the base transaction (in points) or as a fixed amount.

It takes into account the agreed Barriers and Rebates that are paid upon expiration of the option if necessary.

You will find further information in the Market Risk Management (MRM) documentation under Option price calculator.

Features

You get to the option price calculator via Trading ® Utilities ® Option price calcualtor or via Extras ® Option price calculator. Alternatively, you can also press the option price calculator button .

 

 

The option price calculator offers you the following options:

Market data

To perform current market data calculations:

  1. Choose Trading ® Utilities ® Option price calculator.

    2. This takes you to the entry screen, Premium Calculation for OTC Options.

  2. Enter the following data:

- Currency pair (e.g. USD/DEM)

- Start and end date of option term.

3. Press ENTER . The term and the value date (plus 2 days after the end of the term) will be entered automatically by the SAP R/3 System in the relevant fields.

4. By pressing Market data, all fields in the area of the screen headed Market data are filled automatically with current values. Spot rates, interest rates for currency 1 and 2 as well as market volatility.

5. The system uses this data to calculate the swap value.

6. Alternatively, you can enter strike prices for the foreign exchange transaction for 3 Put and Call options.

Swap and forward rate calculation

  1. If you wish to calculate swap rates and forward rates, enter the following data in the entry screen: the bid/ask spot rate, the interest rates for the 1st and 2nd currencies and the volatility of the bid/ask rate.
  2. If you need to calculate the forward rates and the interest rate of the 2nd currency, enter the following data in the entry screen: the bid/ask spot rate, the interest rate for the 1st currency, the swap rates and the volatility of the bid/ask spot rate.
  3. Choose the Swap/forward rates function and the corresponding fields are filled automatically.

Calculating premiums

The calculation of the premium is based on: The calculation of the premium is based on: Spot price, strike price, term, interest rates without risk in both currencies, option category and the volatility of the exchange rate.

  1. Having calculated the market data, enter the strike price (exercise rate) in the fields, Put 1 to 3, and, Call 1 to 3, under the heading Premiums in the entry screen.
  2. Choose Premiums.
  3. The SAP R/3 System calculates the premium in price points (bid/ask) for European-style and American-style exercise.

Sensitivities

After you determine market data and premiums, you can call up a list of the sensitivities of one premium or all premiums.

To view the sensitivities of a premium:

  1. Position the cursor on a premium.
  2. Choose the Sensitivities function. The option sensitivities (Delta, Gamma, etc.) are calculated and displayed in an additional window of this premium.

Implicit volatilities

If you want to find out the volatility on which the calculation of a known option premium is based, carry out the following steps:

  1. Enter one or more premiums in the area of the entry screen headed Premiums.
  2. Position the cursor on an entry.
  3. Press the Implicit volatility button.
  4. The calculated implied volatility is displayed in an additional window. You can integrate this volatility into your market data.

List

To display the sensitivities of all premiums:

  1. Choose List.
  2. The SAP R/3 System generates a global evaluation/list of all sensitivities.

Exotic Options

  1. Choose Exotic options to switch to the entry screen for exotic options and choose Standard options to return to the entry screen for standard options.
  2. The Premium area is split up into the following fields: Category, Basis, Barrier, Rebate. The premium is calculated in the European way.