collar {FinancialMath}

Collar Strategy

Description

Gives a table and graphical representation of the payoff and profit of a collar strategy for a range of future stock prices.

Usage

collar(S,K1,K2,r,t,price1,price2,plot=FALSE)

Arguments

S

spot price at time 0

K1

strike price of the long put

K2

strike price of the short call

r

yearly continuously compounded risk free rate

t

time of expiration (in years)

price1

price of the long put with strike price K1

price2

price of the short call with strike price K2

plot

tells whether or not to plot the payoff and profit

Details

Stock price at time t =S_t

For S_t<=K1: payoff =K1-S_t

For K1<S_t<K2: payoff =0

For S_t>=K2: payoff =K2-S_t

profit = payoff + (price2 - price1)*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 and put options and the net cost.

See Also

collar.bls

option.put

option.call

Examples

collar(S=100,K1=90,K2=110,r=.05,t=1,price1=5,price2=15,plot=TRUE)