# Question

Repeat the previous problem, except that instead of hedging volatility risk, you wish to hedge interest rate risk, i.e., to rho-hedge. In addition to delta-, gamma-, and rhohedging, can you delta-gamma-rho-vega hedge?

In Previous problem

You have purchased a 40-strike call with 91 days to expiration. You wish to deltahedge, but you are also concerned about changes in volatility; thus, you want to vega-hedge your position as well.

a. Compute and graph the 1-day holding period profit if you delta- and vegahedge this position using the stock and a 40-strike call with 180 days to expiration.

b. Compute and graph the 1-day holding period profit if you delta-, gamma-, and vega-hedge this position using the stock, a 40-strike call with 180 days to expiration, and a 45-strike put with 365 days to expiration.

In Previous problem

You have purchased a 40-strike call with 91 days to expiration. You wish to deltahedge, but you are also concerned about changes in volatility; thus, you want to vega-hedge your position as well.

a. Compute and graph the 1-day holding period profit if you delta- and vegahedge this position using the stock and a 40-strike call with 180 days to expiration.

b. Compute and graph the 1-day holding period profit if you delta-, gamma-, and vega-hedge this position using the stock, a 40-strike call with 180 days to expiration, and a 45-strike put with 365 days to expiration.

## Answer to relevant Questions

Suppose you buy a 40-45 bull spread with 91 days to expiration. If you delta-hedge this position, what investment is required? What is your overnight profit if the stock tomorrow is $39? What if the stock is $40.50? Repeat the previous problem for a 40-strike 180-day put. Consider the gap put in Figure 14.4. Using the technique in Problem 12.11, compute vega for this option at stock prices of $90, $95, $99, $101, $105, and $110, and for times to expiration of 1 week, 3 months, and 1 year. ...You wish to insure a portfolio for 1 year. Suppose that S = $100, σ = 30%, r = 8%, and δ = 0. You are considering two strategies. The simple insurance strategy entails buying one put option with a 1-year maturity at a ...Compute λ if the dividend on the CD is 0 and the payoff is $1300 - max (0, 1300 − S5.5) + λ × max(0, S5.5 − 2600) and the initial price is to be $1300.Post your question

0