Question: A futures price is currently at 40 The risk free interest

A futures price is currently at $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 the DerivaGem software to calculate a volatility smile for three-month options.

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  • CreatedJuly 30, 2015
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