Needing help using MESHGRID (R2014b)

Hi

I am trying to plot a Black-Scholes surface:

I have the following simple code --

    function C=bsf(S,t,E,r,sigma,T)
  % Here our function is C=bsf(S,t,E,r,sigma,T)
  % We will construct the Black-Scholes formula for
  % a European call option

tau=T-t;
if tau>0
    d1=(log(S/E)+(r+0.5*sigma^2)*tau)/(sigma*sqrt(tau));
    d2=d1-sigma*sqrt(tau);
    % From standard Black-Scholes materials
    N1=0.5*(1+erf(d1/sqrt(2)));
    N2=0.5*(1+erf(d2/sqrt(2)));
    C=S*N1-E*exp(-r*tau)*N2;
else
    C=max(S-E,0);
end

I input fixed values of E,r,sigma and T. Hence I need to input a range of values for S and t. I have attempted to construct a mesh via meshgrid:

[S,t]=meshgrid(linspace(0,3),linspace(0,1));

I then try to call the bsf code:

mesh(S,t,bsf)

This results in an error in Line 6 of the code (the construction of tau).

How do I get this to work or any pointers on where I am going wrong!

Many thanks

Joe

[Star Strider]

‘This results in an error in Line 6 of the code (the construction of tau).’

Would you be so kind as to tell us what the error is? (Copy and paste all the red output in the Command Window and paste it to a comment here.)

What are the sizes of ‘T’ and ‘t’?

[Joe Bannen]

Here is my attempt to get this to work:

>> T=1;E=1;r=0.05;sigma=0.05;
>> [S,t]=meshgrid(linspace(0,3),linspace(0,1));
>> mesh(S,t,bsf)
Error using bsf (line 6)
Not enough input arguments.

>>

Thanks

Joe

Answer 1

[Star Strider]

You need to call your ‘bsf’ function as:

C=bsf(S,t,E,r,sigma,T);

then plot it as:

mesh(S,t,C)

Since ‘bsf’ is a function file, you have to pass to it all the arguments in its argument list. It will not pick up any variables from the workspace, as an anonymous function would.

[Joe Bannen]

Thanks!!

[Star Strider]

My pleasure!