In this section, we'll construct basic payoff diagrams for European call and put options. Payoff diagrams are useful to visualize the theoretical payoff given the price of the stock and the strike of the option.
The payoff function for a call option is defined as follows:
And the payoff function for a put option is defined as follows:
Let's look at how to do this in F#. We start by defining the payoff functions for calls and puts:
/// Payoff for European call option // s: stock price // k: strike price of option let payoffCall k s = max (s-k) 0.0 /// Payoff for European Put option // s: stock price // k: strike price of option let payoffPut k s = max (k-s) 0.0
We can use these functions to produce numbers to be fed into FSharpChart and visualize the data:
/// Calculate the payoffs given payoff function let payoff payoffFunction = [ for s in 0.0 .. 10.0 .. 100.0 -> s, payoffFunction s ]
We start by generating the payoff diagram for a call option with...