Comment on hedge effectiveness

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Reference no: EM131240935

In the DerivaGem Application Builder Software modify Sample Application D to test the effectiveness of delta and gamma hedging for a call on call compound option on a 100,000 units of a foreign currency where the exchange rate is 0.67, the domestic risk-free rate is 5%, the foreign risk-free rate is 6%, the volatility is 12%.

The time to maturity of the first option is 20 weeks, and the strike price of the first option is 0.015. The second option matures 40 weeks from today and has a strike price of 0.68. Explain how you modified the cells. Comment on hedge effectiveness.

Reference no: EM131240935

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