| butterfly.spread.bls {FinancialMath} | R Documentation |
Butterfly Spread - Black Scholes
Description
Gives a table and graphical representation of the payoff and profit of a long butterfly spread for a range of future stock prices. Uses the Black Scholes equation for the call prices.
Usage
butterfly.spread.bls(S,K1,K2=S,K3,r,t,sd,plot=FALSE)Arguments
S |
spot price at time 0 |
K1 |
strike price of the first long call |
K2 |
strike price of the two short calls |
K3 |
strike price of the second long call |
r |
continuously compounded yearly risk free rate |
t |
time of expiration (in years) |
sd |
standard deviation of the stock (volatility) |
plot |
tells whether or not to plot the payoff and profit |
Details
Stock price at time t =S_t
For S_t<=K1: payoff =0
For K1<S_t<=K2: payoff =S_t-K1
For K2<S_t<K3: payoff =2*K2-K1-S_t
For S_t>=K3: payoff =0
profit = payoff+(2*price_{K2}-price_{K1}-price_{K3})*e^{r*t}
Value
A list of two components.
Payoff |
A data frame of different payoffs and profits for given stock prices. |
Premiums |
A matrix of the premiums for the call options and the net cost. |
Note
K2 must be equal to S.
K3 and K1 must both be equidistant to K2 and S.
K1 < K2 < K3 must be true.
See Also
Examples
butterfly.spread.bls(S=100,K1=75,K2=100,K3=125,r=.03,t=1,sd=.2)