Description Usage Arguments Details Value Author(s) See Also Examples
valuation of a long Straddle strategy (one long call + one long put with same strike price) using pricing by duplication
1 |
S |
the asset price, a numeric value. |
X |
the exercise price, 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
a long call
with the same strike price X. If the strike prices of the 2 options differ (i.e. X1 < X2), then the strategy is called a long strangle.
the price of the Straddle, either scalar or vector
Stefan Wilhelm wilhelm@financial.com
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 | S <- seq(0, 100)
prices <- Straddle(S, X=50, Time=0, r=0.05, r_d=0, sigma=0.2, ratio = 1)
plot(S, prices, type="l", xlab="underlying price", ylab="payoff")
## Straddle payoff diagram
S <- seq(0, 100)
ps1 <- Straddle(S, X=45, Time=1, r=0.01, r_d=0, sigma=0.3, ratio=1)
ps2 <- Straddle(S, X=45, Time=0, r=0.01, r_d=0, sigma=0.3, ratio=1)
ps3 <- Straddle(S, X=45, 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="Straddle")
lines(S, ps1, col="blue")
lines(S, ps3, col="green")
abline(v=45, lty=2, col="gray80")
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Pricing and Evaluating Basic Options
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