Question: Using relevant algebra, explain what the risks for option writers facing a large position gamma while their portfolio is deltahedged? A hedge fund owns a

Using relevant algebra, explain what the risks for option writers facing a large position gamma while their portfolio is deltahedged?

A hedge fund owns a portfolio of options on the US dollar-euro exchangerate. The delta of the portfolio is 65. The current exchange rate is 1.100. Derive an approximate linear relationship between the change in the portfolio value and thepercentagechangeintheexchangerate.Thedailyvolatilityoftheexchange rate is 0.6%. Assuming the normal distribution of the exchange rate returns, estimate the 30-day 99% VaR of the portfolio.

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