Description Usage Arguments Details Value Author(s) See Also Examples
valuation of a long strangle strategy (one long call + one long put with different strike prices) using pricing by duplication
1 |
S |
the asset price, a numeric value or vector. |
X1 |
the exercise price of the long put, a numeric value. |
X2 |
the exercise price of the long call, a numeric value. |
Time |
time to maturity measured in years. |
r |
the annualized rate of interest, a numeric value; e.g. 0.25 means 25% pa. |
r_d |
the annualized dividend yield, a numeric value; e.g. 0.25 means 25% pa. |
sigma |
the annualized volatility of the underlying security, a numeric value; e.g. 0.3 means 30% volatility pa. |
ratio |
ratio, number of underlyings one certificate refers to, a numeric value; e.g. 0.25 means 4 certificates refer to 1 share of the underlying asset |
A strangle is a combination of
a long put with strike price X1 and
a long call with strike price X2 (X1 < X2).
When X1 = X2 the strategy becomes a straddle.
the price of the Strangle
Stefan Wilhelm wilhelm@financial.com
1 2 3 4 5 6 7 8 9 10 11 12 13 14 | ##
Strangle(S=50, X1=40, X2=60, Time=1, r=0.01, r_d=0, sigma=0.3, ratio=1)
## payoff diagram
S <- 1:100
ps1 <- Strangle(S, X1=45, X2=55, Time=1, r=0.01, r_d=0, sigma=0.3, ratio=1)
ps2 <- Strangle(S, X1=45, X2=55, Time=0, r=0.01, r_d=0, sigma=0.3, ratio=1)
ps3 <- Strangle(S, X1=45, X2=55, Time=1, r=0.01, r_d=0, sigma=0.4, ratio=1)
plot(S, ps2, type="l", col="red", xlab="underlying price",
ylab="payoff", main="Strangle")
lines(S, ps1, col="blue")
lines(S, ps3, col="green")
abline(v=c(45, 55), lty=2, col="gray80")
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Loading required package: fBasics
Loading required package: timeDate
Loading required package: timeSeries
Loading required package: fOptions
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[1] 4.516615
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