The Research Kitchen Weblog

Here is a simple implementation of the Black-Scholes pricing formula in R. This will return a two-element vector containing the calculated call and put price, respectively.

# Black-Scholes Option Value
# Call value is returned in values[1], put in values[2]
blackscholes <- function(S, X, rf, T, sigma) {
    values <- c(2)

    d1 <- (log(S/X)+(rf+sigma^2/2)*T)/sigma*sqrt(T)
    d2 <- d1 - sigma * sqrt(T)

    values[1] <- S*pnorm(d1) - X*exp(-rf*T)*pnorm(d2)
    values[2] <- X*exp(-rf*T) * pnorm(-d2) - S*pnorm(-d1)

    values
}

Example use:

> blackscholes(100,110,.05,1,.2)
[1] 6.040088 10.675325