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?

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...