# R script for option pricing using a two state model
# Written for the class Mathematics of Finance, fall 2015
#  http://www.math.nyu.edu/faculty/goodman/teaching/MathFin/index.html
# Author: Jonathan Goodman

cat("Binary one period put option pricer\n")

#  Have the user type in the parameters of the put.
#  Give the user a prompt for each parameter then read it in as a string

cat("Enter the spot price of the stock")
S_0_String <- readLines(con=stdin(),1)

cat("Enter the strike price of the put option")
K_String <- readLines(con=stdin(),1)

cat("Enter the risk free interest rate, in percent per year")
r_String <- readLines(con=stdin(),1)

cat("Enter the time to maturity, in years")
T_String <- readLines(con=stdin(),1)

#    as.numeric(string) returns the number described by the string

S_0 = as.numeric(S_0_String)
K   = as.numeric(K_String)
r   = as.numeric(r_String)
T   = as.numeric(T_String)

u = 1.2          # get these from the user too
d = .8

S_u = u*S_0      # S_u is the price at time T if the stock goes up
S_d = d*S_0      # S_d is the price at time T if the stock goes down

P_u = max( 0, K - S_u)    # Cash flows for the put at expiration in the ...
P_d = max( 0, K - S_d)    # ... up and down states.

B_T = exp(.01*r*T)        # The value of the risk free asset at time T, if B_0 = 1

q_u = .3                  # Risk neutral probabilities -- put in the correct formulas
q_d = .7

# The put price is the discounted expected cash flow in the risk neutral measure

f = ( q_u*P_u + q_d*P_d)/B_T

C1 = sprintf("Spot price is    S_0 = %6.2f\n", S_0)  # C1 is confirmation line 1
C2 = sprintf("Strike price is  K   = %6.2f\n", K)    # add confirmation lines for ...
C5 = sprintf("The put price is f   = %6.2f\n", f)    # other variables

cat( C1)
cat( C2)
cat( C5)