Assume that for a portfolio the following “Greek Letters” have been calculated:

Delta = 0, Gamma = -2500 and Vega = -4000. A risk manager would like to make the portfolio Gamma and Vega neutral using the following two options:

Option	Delta	Gamma	Vega
A	0.6	0.5	2.0
B	0.5	0.8	2.2

What are the quantities w_A of Option A and w_B of Option B that need to be added to the portfolio to make it Gamma and Vega neutral? What is then the new Delta of the portfolio?

Answer rating: 100% (QA)

To make the portfolio Gamma and Vega neutral we need to add two options to the portfolio in such ... View the full answer