European Standard Options (OTC) (SAP Library - Market Risk Management (TR-MRM))

European Standard Options (OTC)

Use

European standard buy (call) and sell (put) options are valued using the Merton Procedure. Both the option price and the delta are calculated. The category of the underlying is only of interest for valuing the delta.

Prerequisites / Calculating the Input Parameters

The price calculator for European standard options has the following parameters:

Term: Remaining term of the option in days

The option price calculator calculates the term as follows:

Exercise date
- Contract date
- Value dated days
= Remaining term of the option in days

Domrate (domestic rate): Interest rate_1 in percent
Forrate (foreign rate): Interest rate_2 in percent
Spot: Spot amount
Strike: Strike amount
UL cat.: Category of the underlying
Vola: Volatility
Put/Call: Indicates whether the option is a put or call option

Features / Valuation

If the expiration date of the option is reached, the internal value of the option (difference between spot and strike) is used.

If the value for the option term is positive, the option price is calculated as follows:

(if underlying = stock)

(otherwise)

(if underlying = stock)

(otherwise)

N(x) is the value of the cumulative distribution function for standard distribution at x.