Calculate the portfolio delta and gamma

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A British financial institution has written 1,200 call options and written 2,300 put options and holds (long) 800 put options on the euro (EUR). (Each option is to buy or sell 1 EUR.) The written call options have a delta of 0.6 and gamma of 1.5, while the written put options have a delta of -0.4 and gamma of 1.1. The long put options have a delta of -0.6 and gamma of 1.0.

i) Calculate the portfolio's delta and gamma

ii) Show how the institution can take a position in the currency and use an exchange-traded call option on the EUR with a delta of 0.4 and gamma of 1.2 to make its portfolio delta and gamma neutral.

Reference no: EM133110034

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