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WARRANT-PRO-2: A GUI-Software for Easy Evaluation, Design and Visualization of European Double-Barrier Options

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Abstract

2001 the first version WARRANT-PRO-2 (0.1) has been presented, see Breitner and Burmester (2002), which optimizes cash settlements for European double-barrier options and warrants. From the viewpoint of financial mathematics, some of the boundary conditions of the partial differential Black-Scholes equation are parameterized. The Black-Scholes equation is solved with a numerical Crank-Nicholson scheme and the parameters are optimized by nonlinear programming, i. e. an advanced SQP-method. In the upgraded version WARRANT-PRO-2 (0.2) an option?s deviation from a predefinable Delta (performance index) is minimized. The global error order of the Crank-Nicholson scheme is now quadratic in time (option's time to maturity) and space (market price of the option's underlying). The gradient of the performance index is computed highly accurate with automatic differentiation. Now a MATLAB-GUI (graphical user interface) allows easy evaluation, design and visualization of options and warrants. WARRANT-PRO-2 (0.2) and its GUI run stand-alone on LINUX PCs and laptops. Optimized options can combine the advantages of futures and options. Delta can be made almost constant for long periods and for a wide range of underlying market prices. Thus, no Delta-hedge adaptation is required. Moreover, tedious margining is not necessary. Optimized European double-barrier options are very interesting derivatives for both buyer and issuer and can revolutionize modern financial markets, see also www.iwi.uni-hannover.de/warrantpro2.html .

Suggested Citation

  • Oliver Kubertin & Michael H. Breitner, 2003. "WARRANT-PRO-2: A GUI-Software for Easy Evaluation, Design and Visualization of European Double-Barrier Options," IWI Discussion Paper Series 5, Institut für Wirtschaftsinformatik, Universität Hannover.
  • Handle: RePEc:ifw:iwidps:iwidps05
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    Keywords

    Financial derivatives; options and futures; hedging tactics; Black-Scholes-model; optimal control and optimization; automatic differentiation; partial differential equations; software engineering; software quality;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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