It is possible to generalize the butterfly position even more to the form with K 1 2

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It is possible to generalize the butterfly position even more to the form

with K₁2 3, and a, b > 0 How are the coefficients a and b to be chosen, to generate a vanishing payoff for S_T ? K₁ and S_T ? K₃?

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A First Course in Quantitative Finance

ISBN: 978-1108419574

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Authors: Thomas Mazzoni

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Question Posted: Feb 19, 2020 09:19 AM

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It is possible to generalize the butterfly position even more to the form with K 1 2

Question:

IIButterfly = C(K1, T) – a · C(K2, T) +b. C(K3, T)

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The coefficients a and b can be chosen such th...View the full answer

A First Course in Quantitative Finance

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