Black Scholes Option Pricing Model in R

Question

I have herein an attempt to code BS model in R. Mathematically, I think this is pretty good, but the code is returning an error.

price = function(S, K, r, T, sigma, type){

  if(type=="C"){
  d1 <- (log(S/K) + (r + sigma^2/2)*T) / (sigma*sqrt(T))
  d2 <- d1 - sigma*sqrt(T)

  price = S*pnorm(d1) - K*exp(-r*T)*pnorm(d2)
  return(price)}

  if (type=="P"){
  d1 <- (log(S/K) + (r + sigma^2/2)*T) / (sigma*sqrt(T))
  d2 <- d1 - sig*sqrt(T)

  price =  (K*exp(-r*T)*pnorm(-d2) - S*pnorm(-d1))
  return(price)}

I have tried to use if, else if both returned an "Error: Incomplete expression:" - I want the stay away from else, because the option type must either by "C" Call or "P" for Put.

I need your help to check why the code isn't running.

Regards

Answer 1

You need to close the bracket for the function. Also, second if statement has sig rather than sigma. I've changed that which gives:

price = function(S, K, r, T, sigma, type){

  if(type=="C"){
    d1 <- (log(S/K) + (r + sigma^2/2)*T) / (sigma*sqrt(T))
    d2 <- d1 - sigma*sqrt(T)

    price = S*pnorm(d1) - K*exp(-r*T)*pnorm(d2)
    return(price)}

  if (type=="P"){
    d1 <- (log(S/K) + (r + sigma^2/2)*T) / (sigma*sqrt(T))
    d2 <- d1 - sigma*sqrt(T)

    price =  (K*exp(-r*T)*pnorm(-d2) - S*pnorm(-d1))
    return(price)}
}

This then works:

price(50,50,0.05,0.5,0.25,'C')
[1] 4.130008

price(50,50,0.05,0.5,0.25,'P')
[1] 2.895503