How To Fix RY804 - American Compound Option is priced like European Compound Option

RY804 - Overview

• Message type: E = Error

• Message class: RY - Messages for RM Basis

• Message number: 804

• Message text: American Compound Option is priced like European Compound Option

What causes this issue?

An American compound option or a compound option on an American option
needs to be valued.
However, no separate valuation model is implemented in the
system for this particular case.

System Response

The system uses the same valuation model as for European options as an
approximation.

How to fix this error?

The system issues an error message and will not allow you to continue with this transaction until the error is resolved.

Procedure for System Administrators

Error message extract from SAP system. Copyright SAP SE.

RY804 - Details

• The SAP error message RY804, which states that "American Compound Option is priced like European Compound Option," typically arises in the context of financial derivatives pricing within SAP's Treasury and Risk Management module. This error indicates that the system is treating an American-style compound option (which can be exercised at any time before expiration) as if it were a European-style compound option (which can only be exercised at expiration).
  
  Cause:
  
  Incorrect Option Type Configuration: The option may have been incorrectly configured in the system, leading the pricing engine to apply European pricing logic instead of American pricing logic.
  Model Limitations: The pricing model being used may not support American-style options, or the parameters set for the option may not align with the characteristics of an American option.
  Data Entry Errors: There may be errors in the data entered for the option, such as incorrect dates, strike prices, or other parameters that affect the pricing