Question: A financial institution has the following portfolio of over the counter options on

A financial institution has the following portfolio of over-the-counter options
on sterling:
Type 
Position 
Delta of Option 
Gamma of Option 
Vega of Option 
Call 
−1,000 
0.50 
2.2 
1.8 
Call 
−500 
0.80 
0.6 
0.2 
Put 
−2,000 
−0.40 
1.3 
0.7 
Call 
−500 
0.70 
1.8 
1.4 
A traded option is available with a delta of 0.6, a gamma of 1.5, and a vega
of 0.8.
(a) What position in the traded option and in sterling would make the portfolio
both gamma neutral and delta neutral?
(b) What position in the traded option and in sterling would make the portfolio
both vega neutral and delta neutral?



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  • CreatedJuly 30, 2015
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