I am trying to solve a question in finance but I am pretty much stuck and would need your help :)
Suppose you know the following information about a market:
Future is at 66 70 strike straddle is trading at 27 50-60 put spread is at 2.5 50-60-70 put fly is at .2 Assume volatility is constant across strikes Using the prices given and relationships between options of various strikes, what are the fair values for the 80 Call, 60 Straddle, and 40 Put? Assume we had a volatility smile among the curve, how would this make your markets different?
I started by the following equations: C(70) - P(70) = 66 C(70) + P(70) = 27 P(50) - P(60) = 2.5 P(50) - 2P(60) + P(70) = 0.2