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Homework answers / question archive / Macquarie University - AFIN 328 A financial institution has the following portfolio of over-the-counter options on sterling: Type Position Delta of option Gamma of option Vega of option Call -1,000 0

Macquarie University - AFIN 328 A financial institution has the following portfolio of over-the-counter options on sterling: Type Position Delta of option Gamma of option Vega of option Call -1,000 0

Finance

Macquarie University - AFIN 328

A financial institution has the following portfolio of over-the-counter options on sterling:

Type

Position

Delta of option

Gamma of option

Vega of option

Call

-1,000

0.50

2.2

1.8

Call

-500

0.80

0.6

0.2

Put

-2,000

-0.40

1.3

0.7

Call

-500

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.

  1. What position in the traded option and in sterling would make the portfolio both gamma neutral and delta neutral?
  2. What position in the traded option and in sterling would make the portfolio both vega neutral and delta neutral?

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