Construct a delta-gamma neutral portfolio

Reference no: EM131773698

Question: Consider the log-normal asset price model with S0 = $80, σ = 30%, and r = 6%. Construct

(a) a delta-gamma neutral portfolio and

(b) a delta-rho neutral portfolio to hedge a short position on 500 calls expiring after 90 days with strike price $80, taking as an additional component a call option expiring after 120 days with strike price $85. Find the changes in value of these portfolios after 5 days if one of the following three scenarios will happen:

(i) the stock drops to $75;

(ii) the interest rate jumps to 9%;

(iii) the stock drops to $75 and the interest rate jumps to 9%.

Reference no: EM131773698

Questions Cloud

Calculate january ending inventory and cost of goods sold : Company XYZ began 2016 with 10,000 units of its principle product. Calculate January's ending inventory and cost of goods sold for the month

What financial resources are required to manage whs : How are these policies and other WHS information communicated? What financial resources are required to manage WHS?

Discuss the balance in the unearned service revenue : the balance in the unearned service revenue account remains unearned at the end of the month

The ethics of social media accuracy : Identify and explain the specific ethical issue/concern that you researched? how does this ethical issue/concern impact the workplace,

Construct a delta-gamma neutral portfolio : Consider the log-normal asset price model with S0 = $80, s = 30%, and r = 6%. Construct a delta-gamma neutral portfolio.

Someone with vision impairment : Is it inconsiderate to use expressions like "I see what you mean" or "see you later" to someone with vision impairment?

Describe mark twain leadership styles : Describe Mark Twain's leadership styles in as much detail as possible, using content from this course and your text as well as your personal observations

Female graduate of harvard business school : Maria Artos, a 25-year-old female graduate of Harvard Business School, has just been appointed to the job of Director of IT in a medium size business.

Write your scholarly paper on high-performing systems : Select one of the given topic areas below to write your scholarly paper no less than 1000 words - Laboratory Learning

User Account

All Pages