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blkprice

Black model for pricing futures options

Description

example

[Call,Put] = blkprice(Price,Strike,Rate,Time,Volatility) computes European put and call futures option prices using Black's model.

Note

Any input argument can be a scalar, vector, or matrix. If a scalar, then that value is used to price all options. If more than one input is a vector or matrix, then the dimensions of those non-scalar inputs must be the same.

Ensure that Rate, Time, and Volatility are expressed in consistent units of time.

Examples

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This example shows how to price European futures options with exercise prices of $20 that expire in four months. Assume that the current underlying futures price is also $20 with a volatility of 25% per annum. The risk-free rate is 9% per annum.

 [Call, Put] = blkprice(20, 20, 0.09, 4/12, 0.25)
Call = 1.1166
Put = 1.1166

Input Arguments

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Current price of the underlying asset (that is, a futures contract), specified as a numeric value.

Data Types: double

Exercise price of the futures option, specified as a numeric value.

Data Types: double

Annualized continuously compounded risk-free rate of return over the life of the option, specified as a positive decimal number.

Data Types: double

Time to expiration of the option, specified as the number of years. Time must be greater than 0.

Data Types: double

Annualized futures price volatility, specified as a positive decimal number.

Data Types: double

Output Arguments

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Price of a European call futures option, returned as a matrix.

Price of a European put futures option, returned as a matrix.

References

[1] Hull, John C. Options, Futures, and Other Derivatives. 5th edition, Prentice Hall, , 2003, pp. 287–288.

[2] Black, Fischer. “The Pricing of Commodity Contracts.” Journal of Financial Economics. March 3, 1976, pp. 167–79.

Version History

Introduced before R2006a