Consider a stock and two European call options of the stock. The price, Delta, and Gamma...

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Consider a stock and two European call options of the stock. The price, Delta, and Gamma of the two options are given by the following table. Price Delta Gamma 40 strike 45 strike 2.7847 1.3684 0.5825 0.3385 0.0651 0.0534 Suppose you are a market maker and do not have any share of the stock in your inventories. Given that one of your clients wants to long ONE share and you have to take a short position. Construct a Delta-Gamma neutral portfolio, which only consists of the short position and the 40-strike and 45-strike call options. Consider a stock and two European call options of the stock. The price, Delta, and Gamma of the two options are given by the following table. Price Delta Gamma 40 strike 45 strike 2.7847 1.3684 0.5825 0.3385 0.0651 0.0534 Suppose you are a market maker and do not have any share of the stock in your inventories. Given that one of your clients wants to long ONE share and you have to take a short position. Construct a Delta-Gamma neutral portfolio, which only consists of the short position and the 40-strike and 45-strike call options. Consider a stock and two European call options of the stock. The price, Delta, and Gamma of the two options are given by the following table. Price Delta Gamma 40 strike 45 strike 2.7847 1.3684 0.5825 0.3385 0.0651 0.0534 Suppose you are a market maker and do not have any share of the stock in your inventories. Given that one of your clients wants to long ONE share and you have to take a short position. Construct a Delta-Gamma neutral portfolio, which only consists of the short position and the 40-strike and 45-strike call options.

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To construct a DeltaGamma neutral portfolio we need to ensure that the overall delta and gamma of th... View the full answer