%% Compute Option Prices on Foreign Currencies Using the Garman-Kohlhagen Option Pricing Model
% This example shows how to compute option prices on foreign currencies using the Garman-Kohlhagen option pricing model. Consider a European put option on a currency with an exercise price of $0.50 on October 1, 2015. The option expires on June 1, 2016. Assume that the current exchange rate is $0.52 and has a volatility of 12% per annum. The annualized continuously compounded domestic risk-free rate is 4% per annum and the foreign risk-free rate is 8% per annum. Using this data, compute the price of the option using the Garman-Kohlhagen model.

Settle = 'October-01-2015';
Maturity = 'June-01-2016';
AssetPrice = 0.52;
Strike = 0.50;
Sigma = .12;
Rates = 0.04;
ForeignRate = 0.08;

%
% Define the RateSpec.

RateSpec = intenvset('ValuationDate', Settle, 'StartDates', Settle, 'EndDates',...
Maturity, 'Rates', Rates, 'Compounding', -1)

%
% Define the StockSpec.

DividendType = 'Continuous';
DividendAmounts = ForeignRate;

StockSpec = stockspec(Sigma, AssetPrice, DividendType, DividendAmounts)

%
% Price the European put option.

OptSpec = {'put'};
Price = optstockbybls(RateSpec, StockSpec, Settle, Maturity, OptSpec, Strike)

% Copyright 2012 The MathWorks, Inc.