Question: Repeat the previous problem except that instead of hedging volatility

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.


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  • CreatedAugust 12, 2015
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