MATLAB: Needing help using MESHGRID (R2014b)

MATLABmeshgrid

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

Best Answer

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.
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