strangle.bls: Strangle Spread - Black Scholes

In FinancialMath: Financial Mathematics for Actuaries

Description

Gives a table and graphical representation of the payoff and profit of a long strangle spread for a range of future stock prices. Uses the Black Scholes equation for the call prices.

Usage

strangle.bls(S,K1,K2,r,t,sd,plot=FALSE)

Arguments

S	spot price at time 0
K1	strike price of the long put
K2	strike price of the 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 =K1-S_t

For K1<S_t<K2: payoff =0

For S_t>=K2: payoff =S_t-K2

profit = payoff-(price_{K1}+price_{K2})*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.

Note

K1 < S < K2 must be true.

Author(s)

Kameron Penn and Jack Schmidt

See Also

option.put

option.call

straddle.bls

Examples

strangle.bls(S=105,K1=100,K2=110,r=.03,t=1,sd=.2)

strangle.bls(S=115,K1=50,K2=130,r=.03,t=1,sd=.2)

FinancialMath documentation built on May 1, 2019, 11:16 p.m.