A bank's position in options on the dollar-euro exchange rate has a delta of 30,000 and a

Fantastic news! We've Found the answer you've been seeking!

Question:

A bank's position in options on the dollar-euro exchange rate has a delta of 30,000 and a gamma of -60,000.

(a) Explain how these numbers can be interpreted.

(b) The exchange rate (dollars per euro) is 0.92. What position would you take to make the position delta neutral?

(d) What additional trade is necessary to keep the position delta neutral?

(e) Assuming the bank did set up a delta-neutral position originally, is it likely that it has lost money from the exchange rate movement?

Related Book For answer-question

Fundamentals of Futures and Options Markets

ISBN: 978-0132993340

8th edition

Authors: John C. Hull

See More Books

Posted Date: Jun 15, 2022 06:06 AM

See More Questions

What approaches would you take to reduce illegal immigration into the United States?
A banks position in options on the dollareuro exchange rate has a delta of 30,000 and a gamma of 80,000. Explain how these numbers can be interpreted. The exchange rate (dollars per euro) is 0.90....
What steps can you take to make abstract concepts such as opportunity feel more concrete in your messages?
The following data has been extracted from last quarter's budget of Elise Ltd, which manufactures and sells a single product. January February March Production units 6200 6200 5800 Sales units 5900...
Distinguish between operating expenses and disbursements for operating expenses.
Describe normal flow, sub-flow, and alternate flow. How do they differ?
Figure P4.64 shows a fixed control volume. It has a volume $V_{0}=1.0 \mathrm{ft}^{3}$, a flow area $A=1.0 \mathrm{ft}^{2}$, and a length $\ell_{0}=1.0 \mathrm{ft}$. Position $x$ represents...
Smith & Co., a local Dallas public accounting firm, is incorporated as a professional corporation, with three shareholders, all CPAs. The shareholders have developed a combination of marketing,...
Consider the following FIRE-INSURANCE PROBLEM where fire partially destroys a $500 house. EVENT FIRE PROBABILITY 0.02 OUTCOME $100 NO FIRE 0.98 $500 INSURANCE PAYOUT PREMIUM $400 0 ?? ?? (a) What do...
A company has two factories, one at Liverpool and one at Brighton.[20] In addition it has four depots with storage facilities at Newcastle, Birmingham, London and Exeter. The company sells its...
Consider the roller coaster ride shown below. Here r 7m and r2 = 18m. Imagine that the car is traveling with a constant speed of v = 8,3m/s throughout the whole ride. If the mass of a child riding...
Apple produces tablet computers for sale. Identify some of the variable and fixed product costs associated with that production.
The party to a draft against whom it is drawn. a. bad c heck b. draft or bill of exchange c. cashiers c heck d. certifi ed check e. check f. drawee g. drawer h. holder i. maker j. negotiability k....
The party to commercial paper who is designated as the one to receive payment. a. bad c heck b. draft or bill of exchange c. cashiers c heck d. certifi ed check e. check f. drawee g. drawer h. holder...
The party to commercial paper who makes a promise to pay. a. bad c heck b. draft or bill of exchange c. cashiers c heck d. certifi ed check e. check f. drawee g. drawer h. holder i. maker j....
An intelligent node of a distributed control system has four tasks, 1 4 (rate - monotonic priorities), with the corresponding execution periods p 1 = 10 ms, p 2 = 100 ms, p 3 = 500 ms, and p 4 =...
Describe and discuss Intrinsic Motivation and Intrinsic Motivators as they relate to employee retention. Provide examples of any Intrinsic Motivators at your workplace and how they can help with...
Saccharin is an artificial sweetener that is used in diet beverages. In order for it to be metabolized by the body, it must pass into cells. Below are shown the two forms of saccharin. Saccharin has...
Trader A enters into a forward contract to buy an asset for $1000 an ounce in one year. Trader B buys a call option to buy the asset for $1000 in one year. The cost of the option is $100. What is the...
Data for a number of stock indices are provided on the authors Web site: www.rotman.utoronto.ca/ hull/data Choose an index and test whether a three standard deviation down movement happens more often...
For an asset where futures prices are usually less than spot prices, long hedges are likely to be particularly attractive." Explain this statement.
A thin stainless steel disk of thickness $b$ and outer radius $r_{o}$ has been heat treated to a high, uniform initial temperature of $T_{i}$. The disk is then placed upon a small stand and...
A plane wall of a furnace is fabricated from plain carbon steel $\left(k=60 \mathrm{~W} / \mathrm{m} \cdot \mathrm{K}, ho=7850 \mathrm{~kg} / \mathrm{m}^{3}, c=430 ight.$ \(\mathrm{J} / \mathrm{kg}...
A steel sphere (AISI 1010), $100 \mathrm{~mm}$ in diameter, is coated with a dielectric material layer of thickness $2 \mathrm{~mm}$ and thermal conductivity \(0.04 \mathrm{~W} / \mathrm{m} \cdot...

A bank's position in options on the dollar-euro exchange rate has a delta of 30,000 and a

Question:

Expert Answer:

a Delta of 30000 implies that if the exchange rate increased by 001 then chan... View the full answer

Fundamentals of Futures and Options Markets

Students also viewed these economics questions