A futures price is currently $40. The risk-free interest rate is 5%. Some news is expected tomorrow

Question:

A futures price is currently $40. The risk-free interest rate is 5%. Some news is expected tomorrow that will cause the volatility over the next three months to be either 10% or 30%. There is a 60% chance of the first outcome and a 40% chance of the second outcome. Use DerivaGem to calculate a volatility smile for three-month options.
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question
Question Posted: