Position in traded option and in sterling make portfolio

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Reference no: EM131237921

Consider again the situation in Problem. Suppose that a second traded option with a delta of 0.1, a gamma of 0.5, and a vega of 0.6 is available. How could the portfolio be made delta, gamma, and vega neutral?

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

1328_Table 3.jpg

A traded option is available with a delta of 0.6, a gamma of 1.5, and a vega of 0.8.

(a) What position in the traded option and in sterling would make the portfolio both gamma neutral and delta neutral?

(b) What position in the traded option and in sterling would make the portfolio both vega neutral and delta neutral?

Reference no: EM131237921

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