Chapter 19 & Chapter 20 Problem 19.1 G0 to hng/www.cboe.com/delayedguote/guote-table and pick a stock or a stock index. Please provide me with a link and the date you accessed the link. a) Graph the implied volatility as a function of strike price for short maturity options and long maturity options (bonus points for the most interesting IV graph). Consider less than 4 months short maturity and greater than one-year long maturity. b) Describe the implied volatility surface and give an explanation of the shape. Problem 19.2 From 19.1 pick the option with the highest gamma from your option sample. a) What does gamma capture, in words. b) What is the impact of a jump of 3% in the price of the underlying on the value of your chosen option in dollars? c) Imagine you are short 1000 of these options, your manager comes to your office and says you need to hedge out the gamma risk. To hedge you are only allowed to use an option with delta of 0.1 and gamma 0.20, what position in this option contract do you need to take? d) Your manager now comes back and realises he forgot to hedge delta, what can you do to hedge out the delta without changing the gamma? Why does this work