4 sub questions) A financial institution has the following portfolio of over-the-counter options on gold: Type Position Delta of Option Vega of Option Call -1,000 0.5 1.8 Call 500 0.8 0.2 Put 2,000 -0.4 0.7 Call 1,500 0.7 1.4 The Risk Management Department estimates that there is a 15% probability that gold price moves by $5 and volatility changes by 10%. What is the amount of possible loss in this scenario? Currently, the only tradable security is a short-term futures contract on gold. The contract size is the same as options contracts (1 oz.). How many futures contracts, in what direction, will minimize the loss amount? Think about the position you created above: (options + futures to minimize risk). Which of the following would give the most favorable result? A virtually constant spot rate Wild movements in the spot rate
4 sub questions) A financial institution has the following portfolio of over-the-counter options on gold: Type Position Delta of Option Vega of Option Call -1,000 0.5 1.8 Call 500 0.8 0.2 Put 2,000 -0.4 0.7 Call 1,500 0.7 1.4 The Risk Management Department estimates that there is a 15% probability that gold price moves by $5 and volatility changes by 10%. What is the amount of possible loss in this scenario? Currently, the only tradable security is a short-term futures contract on gold. The contract size is the same as options contracts (1 oz.). How many futures contracts, in what direction, will minimize the loss amount? Think about the position you created above: (options + futures to minimize risk). Which of the following would give the most favorable result? A virtually constant spot rate Wild movements in the spot rate
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
(4 sub questions) A financial institution has the following portfolio of over-the-counter options on gold:
|
Type |
Position |
Delta of Option |
Vega of Option |
|
Call |
-1,000 |
0.5 |
1.8 |
|
Call |
500 |
0.8 |
0.2 |
|
Put |
2,000 |
-0.4 |
0.7 |
|
Call |
1,500 |
0.7 |
1.4 |
- The Risk Management Department estimates that there is a 15% probability that gold price moves by $5 and volatility changes by 10%. What is the amount of possible loss in this scenario?
- Currently, the only tradable security is a short-term futures contract on gold. The contract size is the same as options contracts (1 oz.). How many futures contracts, in what direction, will minimize the loss amount?
- Think about the position you created above: (options + futures to minimize risk). Which of the following would give the most favorable result?
- A virtually constant spot rate
- Wild movements in the spot rate
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