Table 16.

2 : Payments in an Equity Swap

Copyright K.Cuthbertson and D. Nitzsche (15/5/2001)

Version May 2001 (KCDN)

This spreadsheet calculates the payoff for an equity swap.

User Inputs : These are in red. CHANGE ONLY RED CELLS

Swap is to receive ('return on S&P500' - 0.5%) spread and pays LIBOR.

Notional principal 1,000,000
Swap spread -0.005 (ie. -0.5 %)
Days in year 360

Date Days LIBOR S&P 500 Payment Equity

Index Return LIBOR S&P - Spread Swap
10-Jan-01 5.00% 1,500.00
10-Apr-01 90 5.35% 1,530.00 1.9803% 12,500 18,553 6,053
10-Jul-01 91 5.50% 1,510.00 -1.3158% 13,524 -14,422 -27,946
10-Oct-01 92 4.95% 1,538.00 1.8373% 14,056 17,095 3,040
10-Jan-02 92 1,630.00 5.8097% 12,650 56,819 44,169

Note : "Equity Swap" in the last column is the net payment in the swap
Table 16.3 : Pricing an Asian Call Option-BOPM
Copyright K.Cuthbertson and D. Nitzsche (15/5/2001)

Version May 2001 (KCDN)

This spreadsheet calculates the value of an Asian option for a time path of n=3.

User Inputs : These are in red. CHANGE ONLY RED CELLS

Tree contains 3 nodes (n = 3)

q is the risk neutral probability q = (R-D)/(U-D)
R = (1+r) where r is the periodic rate for timestep dt=1 (here)

S(0) 100 Time 0 Time 1 Time 2 Time 3

K 100
U 1.15 152.09
D 0.8 132.25
r 0.1 115 105.8
R 1.1 100 92
80 73.6
q 0.857143 64
(1-q) 0.142857 51.2

Path Path Number Probability S (0) S (1) S (2) S (3) S S (Max) S (Min) European Options Average (Price or Strike) Asian Options
Number of u's (average) Call Put Price Call Price Put Strike Call Strike Put
Payoff Payoff Payoff Payoff Payoff Payoff
1 u u u 3 0.6297 100 115.00 132.25 152.09 124.83 152.09 100 52.09 0.00 24.83 0.00 27.25 0.00
2 u u d 2 0.1050 100 115.00 132.25 105.80 113.26 132.25 100 5.80 0.00 13.26 0.00 0.00 7.46
3 u d u 2 0.1050 100 115.00 92.00 105.80 103.20 115.00 92 5.80 0.00 3.20 0.00 2.60 0.00
4 d u u 2 0.1050 100 80.00 92.00 105.80 94.45 105.80 80 5.80 0.00 0.00 5.55 11.35 0.00
5 u d d 1 0.0175 100 115.00 92.00 73.60 95.15 115.00 73.6 0.00 26.40 0.00 4.85 0.00 21.55
6 d u d 1 0.0175 100 80.00 92.00 73.60 86.40 100.00 73.6 0.00 26.40 0.00 13.60 0.00 12.80
7 d d u 1 0.0175 100 80.00 64.00 73.60 79.40 100.00 64 0.00 26.40 0.00 20.60 0.00 5.80
8 d d d 0 0.0029 100 80.00 64.00 51.20 73.80 100.00 51.2 0.00 48.80 0.00 26.20 0.00 22.60

Value of Option 26.02 1.15 13.05 1.01 13.99 1.17

Notes : S(1), S(3), S(3) are the stock prices at each node for a specific path through the lattice
S(average) is the average value of the stock price for a specific path, including S(0) in the average
S(Max) and S(Min) are the maximum and minimum values of the stock price for a specific path
European call and put payoffs are based solely on S(3) the stock price at maturity
Asian average price options payoffs are, for a call, max[S(average) - K, 0] and for a put, max[K - S(average), 0]
Asian average strike options payoffs are, for a call, max[S(3) - S(average), 0] and for a put, max[S(average) - S(3), 0]
Table 16.3 : Monte Carlo Simulation for Pricing Asian Options
Copyright K.Cuthbertson and D. Nitzsche (15/5/2001)

Version May 2001 (KCDN)

This spreadsheet set up a MSC for pricing Asian options. In this spreadsheet 10 'runs' which can easily be extended.
To increase the runs from 10 the user has to change the cell which calculates the 'mean payoff' (see bottom of spreadsheet).

The Call option premium is calculated at the bottom of the file

User Inputs : These are in red. CHANGE ONLY RED CELLS

Asian Call Option Payoff at T = Max( "Average S" - K , 0 )

Asian Call Premium = exp( - r T ) x "Payoff(T)"

Share price, S 100

Strike Price, K 110

Interest rate, r 0.1

Drift of stock price, m 0.05 (Not used, since in a risk neutral world S grows at the risk free rate , m= r )
Volatility, s 0.4

Time to maturity, T 1
Timesteps, Dt 0.01

Time Sim 1 Sim 2 Sim 3 Sim 4 Sim 5 Sim 6 Sim 7 Sim 8 Sim 9 Sim 10

0 100 100 100 100 100 100 100 100 100 100
0.01 97.64884 99.42598 104.2477 99.3817 95.07955 96.96989 101.0894 95.10931 99.55996 101.1374
0.02 99.20419 102.5261 101.5768 95.61942 93.21609 99.20622 104.0533 91.96366 97.34975 99.59487
0.03 96.91356 105.2794 102.7943 103.7443 101.6187 96.43475 99.69138 96.5619 97.64108 99.82194
0.04 101.3471 111.1049 107.4744 93.68192 96.01227 100.4459 99.3944 96.73139 101.1068 93.00368
0.05 97.10992 109.0815 117.3271 90.96523 101.0053 99.80482 106.1697 101.624 105.1093 94.34284
0.06 94.46074 108.3763 116.8361 82.6981 100.7803 103.8446 105.4185 102.6726 106.3301 100.4138
0.07 86.75989 105.6047 121.9458 80.96164 96.47045 113.0174 116.7212 104.7795 105.8362 99.92841
0.08 86.97003 108.7586 126.9194 75.89374 101.0597 108.7726 116.794 102.2022 109.9904 96.54535
0.09 80.89256 117.4544 118.7876 75.29001 101.7198 99.86025 125.9901 100.5418 109.2558 101.0305
0.1 79.22889 117.2938 116.7111 74.10882 101.9762 100.0936 126.3472 99.80793 111.2756 96.23895
0.11 75.71095 115.032 106.544 74.52732 101.6572 96.51949 127.819 107.4765 115.2614 97.99789
0.12 74.31987 113.6109 104.0472 73.50392 102.0039 97.25946 124.8352 110.6628 110.1104 99.58909
0.13 70.46239 113.9499 112.3271 71.97397 100.4228 90.62441 126.2232 105.7274 108.3723 100.0524
0.14 71.54264 112.0604 114.0505 71.02492 98.3761 90.07019 122.2185 103.8169 110.2522 97.7681
0.15 69.51834 108.583 109.6753 75.72864 102.5349 91.77744 127.9345 102.4234 108.2774 98.31834
0.16 72.56315 109.2082 114.5555 74.69912 96.34905 93.79048 123.8227 101.243 111.4073 100.3162
0.17 71.13626 118.4992 117.7513 74.15683 101.6035 98.73566 129.4577 99.57079 110.363 97.99956
0.18 70.32267 116.7841 114.373 74.27049 105.0136 96.36267 118.9896 100.9605 119.1126 100.5449
0.19 66.10965 100.2306 110.9726 75.90642 111.2746 93.57036 120.9915 97.0609 114.0581 105.0701
0.2 63.85814 91.86929 116.9132 75.43801 110.7226 90.47025 120.8076 104.3182 124.5543 99.22185
0.21 61.33515 91.91533 115.5651 75.84899 111.0643 90.67622 120.7588 103.467 117.7508 96.45368
0.22 57.63097 95.9297 115.676 71.60214 108.594 91.00991 107.3029 101.6818 119.892 97.34928
0.23 59.53697 93.63075 114.2206 70.00523 109.9763 97.60663 113.8391 103.8963 119.4057 98.26095
0.24 56.78681 98.48383 110.4134 70.7116 105.3229 97.39809 118.8408 115.6263 115.1064 99.21281
0.25 58.19185 102.0051 115.6243 67.64034 110.8381 100.2644 113.3527 123.0943 114.23 103.172
0.26 60.47755 100.5243 117.1031 71.81865 112.8011 96.47358 121.4761 128.9381 114.7877 108.1035
0.27 63.24889 102.2353 122.9831 70.96574 104.991 97.11432 125.7252 126.7401 111.584 104.8466
0.28 62.04632 103.2025 117.3133 70.51655 104.7787 97.75818 135.729 130.2349 113.9233 114.2734
0.29 59.36951 106.2088 125.393 69.83329 106.263 96.59074 136.0165 122.4128 114.0576 117.8864
0.3 57.78624 110.9089 130.0223 74.79883 105.1 93.82719 142.3875 124.4494 114.892 112.9178
0.31 55.21658 111.3149 131.9199 71.29813 102.6149 89.13569 139.1829 126.8242 119.5554 115.7444
0.32 54.54367 105.5592 132.1762 71.87226 101.797 90.64814 134.1434 124.1987 121.9296 118.8665
0.33 56.72153 111.0459 133.2977 68.53967 102.8491 94.55145 144.8423 118.9474 119.067 110.644
0.34 58.91627 119.2379 140.3899 67.06998 100.2842 100.7372 144.0072 125.3419 117.6832 113.8592
0.35 58.20292 125.9405 147.591 69.80352 91.91278 99.60308 143.7345 121.7978 115.606 111.1721
0.36 58.4689 124.8025 154.9134 68.79653 100.8043 99.86634 152.9848 125.7917 113.3872 109.7632
0.37 61.5458 117.5148 150.9918 68.51752 97.74224 98.00947 149.5858 110.0383 118.0487 103.664
0.38 63.68162 107.8874 157.7207 69.62421 95.53289 104.2906 147.3922 106.8999 112.7567 98.71239
0.39 66.6882 110.2838 155.802 71.84081 95.37829 110.6349 144.1636 109.264 114.7747 100.9523
0.4 64.71197 107.1657 152.9481 70.64214 93.68877 107.2725 152.6911 113.2289 117.1177 98.21368
0.41 62.8108 107.3388 159.8472 71.77306 91.90232 102.2128 159.798 113.9552 122.7886 96.31834
0.42 63.47452 102.8695 152.9074 73.23991 92.09839 104.172 153.7006 122.7115 121.5808 102.0648
0.43 62.58259 105.3345 150.852 78.33228 85.01422 102.2257 150.6122 123.791 117.6045 106.0386
0.44 59.07234 105.6331 150.6157 77.79121 88.06005 101.8046 147.4887 122.2601 107.5961 105.5831
0.45 55.6329 107.6076 144.8947 76.3829 87.33969 103.4906 137.2974 119.4855 105.5591 108.2715
 0.46 55.0809 106.2209 147.2652 73.47592 83.16038 101.3812 125.8851 117.8512 111.7729 113.5213
0.47 52.81094 98.78581 160.6396 73.04994 82.99338 98.70936 120.2989 118.1631 105.4714 106.3037
0.48 54.74836 101.8969 151.1192 76.98085 86.63924 101.9019 111.2938 119.7734 102.8798 100.2658
0.49 55.14822 106.4218 144.8929 77.32962 86.97462 100.7026 115.1687 121.5856 94.21374 107.8048
0.5 52.78725 98.10292 150.6412 79.01681 91.31776 102.9241 114.7433 117.4263 101.9743 111.6575
0.51 53.3534 101.1712 153.9246 78.6185 95.5049 108.3473 109.0092 125.1631 102.9104 113.7959
0.52 52.58567 103.1149 150.9837 80.25153 97.9309 112.0513 118.7174 124.653 91.72201 110.1121
0.53 56.84402 101.3648 154.7279 79.19534 96.79246 112.4109 118.3259 121.4118 91.17474 110.4775
0.54 53.6893 101.0957 157.1345 83.0139 100.9673 104.8479 114.1877 119.8278 86.12896 109.99
0.55 55.54658 102.3827 164.4636 87.11707 94.68196 106.233 118.2326 113.5733 88.25504 106.6093
0.56 54.26734 99.27278 175.3289 91.27527 94.90221 103.5336 114.0059 110.6312 85.94692 106.0187
0.57 50.51333 97.19034 169.0148 87.71158 95.04852 94.65148 111.3287 113.7119 84.6221 101.8464
0.58 50.67183 97.76593 176.3071 84.43722 96.83602 91.74637 113.5346 111.2811 85.08842 103.8018
0.59 54.3078 105.6879 170.1458 89.18638 97.05119 95.92146 117.2048 116.519 81.09281 102.9102
0.6 53.01079 102.0688 184.2776 89.282 93.62138 97.93515 115.9392 116.7807 80.1449 105.7672
0.61 50.33178 105.3762 192.7228 86.73944 96.19049 100.3965 116.5155 120.3533 76.96496 105.0865
0.62 53.85895 104.1627 187.5067 90.32537 90.14916 102.9684 113.8229 120.8974 80.88301 111.4054
0.63 57.94048 101.3879 180.6536 90.64542 88.20251 100.033 101.1843 123.8685 85.26193 120.7809
0.64 56.82979 108.6897 181.3157 87.95245 87.57354 100.5444 96.14484 122.8131 89.00809 129.9072
0.65 56.34469 111.4143 176.0962 87.61218 90.5196 104.6139 89.08252 112.9642 85.58625 131.986
0.66 54.78457 113.7121 186.7493 91.06375 90.85321 101.8455 83.40834 110.1229 89.31108 124.2244
0.67 57.45458 106.0189 188.7376 90.91886 96.67647 101.1385 82.69592 107.5487 96.23676 126.185
0.68 54.44312 104.1006 202.587 96.47791 94.03866 102.7516 82.10632 104.7809 99.72453 127.46
0.69 54.90091 102.012 190.4789 97.59493 95.20953 104.8016 82.45687 105.9152 104.0263 125.2195
0.7 55.05383 100.7854 183.1534 93.01267 92.78386 105.9002 90.36984 118.7697 104.5979 122.1826
0.71 55.52398 101.4457 187.7536 93.08028 93.82732 113.3987 86.27662 110.1427 99.88128 132.537
0.72 52.26506 99.912 183.971 95.16724 89.09079 107.7337 84.69963 106.7579 100.2273 129.4346
0.73 54.1607 98.42761 184.084 98.7162 93.96245 101.0347 91.33118 106.1848 109.2769 124.3318
0.74 52.35167 95.51566 191.9346 96.98825 92.9342 104.5104 94.92971 113.9613 114.0855 116.6854
0.75 51.1934 97.31556 190.6762 96.22247 97.57937 104.466 98.70388 117.7716 111.3395 120.154
0.76 52.82721 91.18041 201.6868 95.18507 94.31052 96.25664 103.9707 116.5725 104.0265 114.2536
0.77 53.64435 93.95845 190.5115 92.11611 100.4393 95.19259 107.8019 121.2608 104.0816 112.8933
0.78 56.16488 97.6268 194.2252 101.5143 97.29273 99.01102 105.9144 120.603 98.67722 111.5946
0.79 54.37166 93.87089 173.308 103.3729 96.45894 94.20829 104.4211 115.9087 92.02047 120.5342
0.8 58.84108 93.71098 170.9737 99.50558 98.12866 92.3501 111.3477 105.5653 93.71593 117.3403
0.81 60.57565 94.03028 174.8114 92.94947 96.63213 92.07441 106.9005 110.1916 95.85326 125.6796
0.82 60.69508 93.48221 171.7806 94.83518 98.42233 86.57712 107.6926 107.5384 97.32038 122.6122
0.83 62.28437 93.0334 171.7114 95.06236 98.20368 84.21366 110.4495 105.2602 95.04642 116.1711
0.84 64.47177 91.23982 169.378 96.75476 99.67483 85.9134 108.2929 103.4287 98.81841 106.1174
0.85 59.31873 87.10436 177.9291 93.86092 103.6079 84.7454 114.2308 104.9098 103.2583 101.4309
0.86 57.08537 87.20895 164.958 97.42931 102.3539 84.10943 114.9201 101.2215 105.5636 102.2589
0.87 57.45423 86.28749 165.0354 94.56698 93.4958 82.44446 112.0746 104.8083 105.8839 95.63863
0.88 60.22976 95.51971 160.1638 92.31754 92.87927 86.75424 110.7313 103.9621 106.1799 95.43146
0.89 60.71185 91.40803 150.7956 97.25576 93.4144 86.67255 108.2953 98.30876 107.1688 98.26304
0.9 64.97156 94.1947 144.4461 93.87844 91.36573 90.68404 109.3135 100.2905 100.7304 90.7956
0.91 65.26584 90.80259 144.4628 94.23169 90.80601 87.33133 112.851 99.61553 101.0745 89.67529
0.92 67.29536 86.76566 140.7494 99.00806 93.86002 86.31407 116.9425 97.00203 92.86135 89.67365
0.93 69.79218 85.48541 141.4451 94.89823 99.06524 82.75153 123.9378 104.3225 100.4614 91.38215
0.94 70.6762 82.91457 143.2726 92.97466 96.00692 82.92233 120.6414 105.2662 104.842 90.41026
0.95 68.89831 83.8061 142.4729 93.60463 92.75965 84.41308 130.3583 103.7146 103.7844 91.49455
0.96 70.49923 88.23143 141.7365 89.92028 87.50528 82.20584 125.5721 108.3118 96.05038 94.40398
0.97 68.14554 90.96294 147.6468 90.82535 89.88931 81.87255 125.002 112.4283 92.25381 96.12151
0.98 68.24149 90.60778 132.11 88.81571 90.89025 80.25933 112.4216 108.8536 92.23592 92.03057
0.99 71.5197 95.81053 131.6831 88.50677 91.55562 81.86974 108.5088 106.4911 89.56426 97.04953
1 75.67648 96.50568 126.2824 86.36408 94.71846 80.31958 115.7135 101.446 92.52937 96.44702

Average
Stock price 63.64 102.06 148.02 84.01 96.96 96.89 117.24 111.18 103.86 106.43

Asian Payoff 0.00 0.00 38.02 0.00 0.00 0.00 7.24 1.18 0.00 0.00
(Av. S - K )

Mean Payoff 4.64

PV of Mean Payoff 4.20 equals Call premium for Asian/Average rate option
Table 16.5 : Pricing a Barrier Option - BOPM
Copyright K.Cuthbertson and D. Nitzsche (15/5/2001)

Version May 2001 (KCDN)

This spreadsheet calculates the value of a barrier option for a time path of n=3.

User Inputs : These are in red. CHANGE ONLY RED CELLS

Tree contains 3 nodes (n = 3)

Note that q is the risk neutral probability q = (R-D)/(U-D)
R = 1+r and r is the periodic rate for timestep dt=1 (here)
knock' in table implies option is either 'knocked in' or 'knocked out'.

S(0) 100 Time 0 Time 1 Time 2 Time 3

K 100
U 1.15 152.09
D 0.8 132.25
r 0.1 115.00 105.80
R 1.1 100 92.00
80.00 73.60
q 0.857143 64.00
(1-q) 0.142857 51.20

Barrier 90 90 93 93 130 130 110 110

Path Path Number Probability S (0) S (1) S (2) S (3) Down - out' and 'Down - in' Options Up - out' and 'Up - in' Options
Number of u's Payoff Payoff
Out-Call In-Call Out-Put In-Put Out-Call In-Call Out-Put In-Put
1 u u u 3 0.6297 100 115.00 132.25 152.09 52.09 knock 0.00 knock knock 52.09 knock 0.00
2 u u d 2 0.1050 100 115.00 132.25 105.80 5.80 knock 0.00 knock knock 5.80 knock 0.00
3 u d u 2 0.1050 100 115.00 92.00 105.80 5.80 knock knock 0.00 5.80 knock knock 0.00
4 d u u 2 0.1050 100 80.00 92.00 105.80 knock 5.80 knock 0.00 5.80 knock 0.00 knock
5 u d d 1 0.0175 100 115.00 92.00 73.60 0.00 knock knock 26.40 0.00 knock knock 26.40
6 d u d 1 0.0175 100 80.00 92.00 73.60 knock 0.00 knock 26.40 0.00 knock 26.40 knock
7 d d u 1 0.0175 100 80.00 64.00 73.60 knock 0.00 knock 26.40 0.00 knock 26.40 knock
8 ddd 0 0.0029 100 80.00 64.00 51.20 knock 0.00 knock 48.80 0.00 knock 48.80 knock

Value of Option 25.56 0.46 0.00 1.15 0.91 25.10 0.80 0.35