[R] 3D Black-Scholes Graph Help!

[David Winsemius]

On Mar 13, 2012, at 4:24 PM, Anna Dunietz wrote:

> Hello all!
>
> I would like to create a 3d plot, with the option price explained by  
> the underlying price and time.  Unfortunately, I can't quite get it  
> to work.  I would very much appreciate your help!
>

The usual problem with lattice calls that you "can't quite get ... to  
work" is failure to read the R-FAQ ( or the help(lattice) page) where  
it is explained that you need to print() the function result. At the  
moment my R-machine is tied up with a long process but try wrapping  
print() around that wireframe call.

-- 
David.

> Thanks,
> Anna
>
> # Black-Scholes Option Graph
> library(lattice)
>
>
> blackscholes <- function(s, k, r=.1, t=5, sigma=.9,call=TRUE) {
>    #calculate call/put option
>    d1 <- (log(s/k)+(r+sigma^2/2)*t)/(sigma*sqrt(t))
>    d2 <- d1 - sigma * sqrt(t)
>    ifelse(call==TRUE,s*pnorm(d1) - k*exp(-r*t)*pnorm(d2),k*exp(-r*t)  
> * pnorm(-d2) - s*pnorm(-d1))
>    }
>
> plotbs <- function(price){
>    #create
>    s<-seq(0,price,len=price/2)
>    k<-s
>
>    t<-0:5
>    sigma<-seq(0,0.9,by=.1)
>
>    #expand information
>    OptionPrice<-matrix(nrow=length(s),ncol=length(k))
>    for(i in 1:length(s)) OptionPrice[i,]<-mapply(blackscholes,s[i],k)
>    grid <- expand.grid(list(Time=t, UnderlyingPrice=s))
>
>    #plot
>    wireframe(OptionPrice~Time*UnderlyingPrice,data=grid,main="3D  
> Option",
>              drape=T,col.regions=heat.colors(100),scales =  
> list(arrows=FALSE),)
>    }
>
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> and provide commented, minimal, self-contained, reproducible code.

David Winsemius, MD
West Hartford, CT