# Introduction

We provide functions for option pricing, option hedging, and portfolio selection.

Package is provided by Jussi Klemelä

# Installation instructions

Download the file finatool.R (updated 2012/10) and then issue the command

> source("/path/finatool.R")

in the R console. In Unix the command> source("/home/aaa/Desktop/finatool.R")

could work, where "aaa" is the user account. In OS X the command> source("/Users/aaa/Desktop/finatool.R")

could be used. In Windows XP the command> source("C:\\Documents and Settings\\user\\Desktop\\finatool.R")

could be used.# Contents

Functions for option hedging and pricing:

- bs: calculates the Black-Scholes price for an European call or put option
- bs.delta: calculates the delta of Black-Scholes hedging for an European call or put option
- bs.implied: calculates the Black-Scholes implied volatility given the current price of an European call or put option
- bs.binomial: calculates the Black-Scholes price for an European call or put option using the Cox-Ross-Rubinstein binomial formula
- bs.recursive: calculates the Black-Scholes price for an European put option using the Cox-Ross-Rubinstein recursive valuation formula
- bs.recursive.amerput: calculates the Black-Scholes price for an American put option using the Cox-Ross-Rubinstein recursive valuation formula
- hedging: calculates an optimal delta for an European call option, using numerical optimization
- hedging.data: calculates data which is used for caluculating the hedging parameter
- mc.hedge: calculates the price and the delta which are optimal in the minimum variance sense for a single period hedging of an European call or put option, using Monte Carlo integration

Functions for portfolio management:

- sharpe.confidence: calculates a confidence band for Sharpe ratio