SECTION A Attempt BOTH questions in this section. Each question is worth 25 marks. 10 marks...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/664a5c22bfe57_282664a5c224b5a7.jpg)
Transcribed Image Text:
SECTION A Attempt BOTH questions in this section. Each question is worth 25 marks. 10 marks are awarded for the quality of the Excel file. 15 marks are awards for the quality of your descriptive solution in the PDF file. 1. Consider 3 European options, each to buy 1 unit of an underlying stock whose current price is 100 and volatility is 30%. The risk-free rate and dividend yield are both zero and the type, strike and maturity (in days) of these options are as follows: Option Type Maturity Strike 1 Put 30 90 2 Put 60 110 3 Call 90 100 (a) Calculate the delta, gamma and vega of each option, and round the results to 3 decimal places. Then display your results in a table, as follows: Option Delta Gamma Vega 1 2 3 (b) Suppose you have sold 50 put options with strike 90 and maturity 30 days. How many of the options 2 and 3 will you need to buy or sell to achieve an overall position that is gamma-vega neutral? Your correct answer will need to take account of position risk - that is, you cannot buy or sell fractions of the options. Therefore round your numerical results to the nearest whole number. (c) Using the whole number values obtained in part (b), calculate the net position delta of your gamma-vega neutral portfolio. How many units of the underlying should be bought or sold for the total portfolio of stocks and options to be approximately delta neutral? Again, round your results to the nearest whole number because you cannot buy or sell fractions of a share. SECTION A Attempt BOTH questions in this section. Each question is worth 25 marks. 10 marks are awarded for the quality of the Excel file. 15 marks are awards for the quality of your descriptive solution in the PDF file. 1. Consider 3 European options, each to buy 1 unit of an underlying stock whose current price is 100 and volatility is 30%. The risk-free rate and dividend yield are both zero and the type, strike and maturity (in days) of these options are as follows: Option Type Maturity Strike 1 Put 30 90 2 Put 60 110 3 Call 90 100 (a) Calculate the delta, gamma and vega of each option, and round the results to 3 decimal places. Then display your results in a table, as follows: Option Delta Gamma Vega 1 2 3 (b) Suppose you have sold 50 put options with strike 90 and maturity 30 days. How many of the options 2 and 3 will you need to buy or sell to achieve an overall position that is gamma-vega neutral? Your correct answer will need to take account of position risk - that is, you cannot buy or sell fractions of the options. Therefore round your numerical results to the nearest whole number. (c) Using the whole number values obtained in part (b), calculate the net position delta of your gamma-vega neutral portfolio. How many units of the underlying should be bought or sold for the total portfolio of stocks and options to be approximately delta neutral? Again, round your results to the nearest whole number because you cannot buy or sell fractions of a share.
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Raheem & Co. purchased a fixed asset on 1.4.2018 for Rs.2,50,000. Depreciation is to be provided @10% annually according to the Straight-line method. The books are closed on 31st March every year....
-
Your client needs a new car and is trying to decide whether to (1) buy and pay cash, (2) buy fully financed, or (3) lease. The following terms are available: If the car is purchased for cash: - Cost...
-
Give the rates of growth of two populations, x and y, measured in thousands. (a) Describe in words what happens to the population of each species in the absence of the other. (b) Describe in words...
-
Supply-chain management involves long-term partnerships among channel members that are working together to reduce inefficiencies, costs, and redundancies and develop innovative approaches to satisfy...
-
Griffin Companys inventory records for its retail division show the following at December 31: At December 31, 11 of these units are on hand. Journalize the following for Griffin Company under the...
-
As a CPA, can you discuss two examples of how financial accounting can be useful in supporting a business and upholding their mission statement? Can you share one key to your success as a...
-
SAP is a piece of enterprise resource planning (ERP) software that provides businesses with a unified platform from which they can manage various facets of their operations. SAP's ERP software...
-
Following table comes from a regression analysis of y = number of children in family, x = mother's educational level in years, and x2 father's socioeconomic status, for a random sample of 49 stu- =...
-
For the following simply supported beam: a) Determine equations for V(x) and M(x) for sections 0 x 14 and 14 x20. Box your answers. b) Roughly sketch the shear and bending moment diagram for the...
-
You are preparing for a top-level meeting between the Minister of International Trade, the Minister of Foreign Affairs, and senior business executives representing several multinational corporations...
-
1. A rope AB 6 m long is connected at two points A and B at the same level 4.5 m apart. A load of 2000 N is suspended from point C on the rope at 2 m from A, as shown in the figure below. What load...
-
Assume that Fake Stone, Inc. is operating at full capacity. Also assume that assets, costs, and current liabilities vary directly with sales. The dividend payout ratio is constant. The Companys sales...
-
1. What are the general needs of consumers when logging on to a sport website? 2. What factors affect online sport communication? 3. What factors contribute to a successful sport website? 4. How does...
-
Beginning with a country that has a trade deficit, demonstrate graphically what will happen to a countrys potential output with globalization if that countrys costs of production fall. Explain your...
-
Swissie Triangular Arbitrage. The following exchange rates are available to you. (You can buy or sell at the stated rates.) Assume you have an initial SF12,000,000. Can you make a profit via...
-
Aussie Dollar Forward. Use the following spot and forward bid-ask rates for the U.S. dollar/Australian dollar (US$ = A$1.00) exchange rate from December 10, 2010, to answer the following questions:...
-
Transatlantic Arbitrage. A corporate treasury working out of Vienna with operations in New York simultaneously calls Citibank in New York City and Barclays in London. The banks give the following...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App