Answer the following two questions with respect to the table below. A financial institution has the following portfolio of over-the-counter options on a stock: Vega of Option Туре Рosition Delta of Gamma of Option Option 0.50 Call -1,000 -500 2.2 1.8 Call 0.80 0.6 0.2 Put -2,000 -500 -0.40 1.3 0.7 Call 0.70 1.8 1.4 A traded option is available with a delta of 0.6, a gamma of 1.5, and a vega of 0.8. What position in this option and the underlying will make the portfolio delta and gamma neutral?

Answer the following two questions with respect to the table below. A financial institution has the following portfolio of over-the-counter options on a stock: Vega of Option Туре Рosition Delta of Gamma of Option Option 0.50 Call -1,000 -500 2.2 1.8 Call 0.80 0.6 0.2 Put -2,000 -500 -0.40 1.3 0.7 Call 0.70 1.8 1.4 A traded option is available with a delta of 0.6, a gamma of 1.5, and a vega of 0.8. What position in this option and the underlying will make the portfolio delta and gamma neutral?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter8: Financial Options And Applications In Corporate Finance

Section: Chapter Questions

Problem 5MC: In 1973, Fischer Black and Myron Scholes developed the Black-Scholes option pricing model (OPM). (1)...

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