6. You have a butterfly spread with strikes at 80, 100, and 120. The options are...

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6. You have a butterfly spread with strikes at 80, 100, and 120. The options are all 1-year, notional is 100, and the initial stock price is 100. and the 1-year volatility surface is given below. Risk-free rate is 0% continuously compounded and no dividends. What is the value of the butterfly spread? How much stock would be needed to delta hedge the butterfly spread? Strike (K) 80 100 200 80 30% 28% 26% Stock (S) 100 120 27% 24% 25% 22% 23% 20% 6. You have a butterfly spread with strikes at 80, 100, and 120. The options are all 1-year, notional is 100, and the initial stock price is 100. and the 1-year volatility surface is given below. Risk-free rate is 0% continuously compounded and no dividends. What is the value of the butterfly spread? How much stock would be needed to delta hedge the butterfly spread? Strike (K) 80 100 200 80 30% 28% 26% Stock (S) 100 120 27% 24% 25% 22% 23% 20%

Answer rating: 100% (QA)

To calculate the value of the butterfly spread we need to determine the prices of the individual options at each strike price and apply the appropriate weights The butterfly spread consists of buying ... View the full answer