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Consider a portfolio dependent on the price of a single asset with a delta (Δ) of 5,000 and a gamma (Γ) of -2,000. The price of the underlying asset is currently £85. a) Interpret the numbers of the delta and the gamma b) Identify a position to make the portfolio delta neutral  c) After a short period of time the price of the underlying asset increases to £87. Estimate the new delta d) Identify the position necessary to keep the portfolio delta neutral

Consider a portfolio dependent on the price of a single asset with a delta (Δ) of 5,000 and a gamma (Γ) of -2,000. The price of the underlying asset is currently £85. a) Interpret the numbers of the delta and the gamma b) Identify a position to make the portfolio delta neutral  c) After a short period of time the price of the underlying asset increases to £87. Estimate the new delta d) Identify the position necessary to keep the portfolio delta neutral

Essentials Of Investments
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
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Consider a portfolio dependent on the price of a single asset with a delta (Δ) of 5,000 and a gamma (Γ) of -2,000. The price of the underlying asset is currently £85.

a) Interpret the numbers of the delta and the gamma

b) Identify a position to make the portfolio delta neutral 

c) After a short period of time the price of the underlying asset increases to £87. Estimate the new delta

d) Identify the position necessary to keep the portfolio delta neutral

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