Compound option calculator

This article introduces compound options, and provides a pricing spreadsheet.

Companies often use compound options when tendering for a contract; the option hedges against the risk of winning the contract. They are also used in foreign currency and fixed income markets, when risk protection may or may not be required. They allow the holder to pay a lower initial premium.

Compound option pricing - Quantitative Finance Collector

A compound option is an option on an option — in other words, an option to trade another option. A premium is first paid for the compound option.

If both options are exercised, then the compound option will be more expensive than an vanilla option on the underlying.

Black-Scholes Calculator - Compound Option

Two sets of parameters, one each for the underlying and compound option, are required. As such, the combined volatility that is, the volatility of volatility of both options significantly affects their price. They assume constant volatility, and hence underestimate the price.

This Excel spreadsheet prices compound options with the equations given by Rubinstein and Geske It is coded in VBA and uses an approximation for the bivariate cumulative probability distribution function.

Download Excel Spreadsheet to Price Compound Options. This Excel spreadsheet prices compound options with a Cox-Ross-Rubinstein binomial tree, and also calculates the Greeks Delta, Gamma and Theta.

The routine is coded in VBA leave a comment if you want the password. Both this and the earlier spreadsheet gives similar results. Download Excel Spreadsheet to Price Compound Options with a Binomial Tree. May I have the password please? It would be really helpful for me to understand further. Hi Have you programmed the bivariate cumulative distribution function, or used some other method?

Hi, this is a rather informative guide. Would it be possible to have the password for the Compound Options Pricing with Binomial Tree? You can buy a password-free version here: What excel version are you using?

I am using version and the macros are not working. Your email address will not be published.

Skip to content Privacy Policy About Me Questions About The Spreadsheets? Premium Excel Tools Kudos Baby. Business Analysis Portfolio Analysis Option Pricing Technical Trading Buy Spreadsheets Commentary. Home Option Pricing Compound Options — Introduction and Pricing Spreadsheet Compound Options — Introduction and Pricing Spreadsheet 8. March 14, at 2: March 14, at 7: September 2, at 5: December 3, at 9: December 4, at 2: December 30, at 8: Hi, is it possible to have CRR method to price barrier options THanks.

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