The delta and gamma of the portfolio held by an option dealer are + 178 and -322, respectively. The gamma of both calls and puts with strike price of $21 and with three months to maturity is 0.046. The current market price of the underlying non- dividend paying share is $25. The implied volatility of the share is 30% p.a. and three-month risk-free interest rate 3.83% p.a. What would be the most cost-efficient way to make the portfolio delta- gamma -neutral based on transactions on either of the options and the underlying shares?
The delta and gamma of the portfolio held by an option dealer are + 178 and -322, respectively. The gamma of both calls and puts with strike price of $21 and with three months to maturity is 0.046. The current market price of the underlying non- dividend paying share is $25. The implied volatility of the share is 30% p.a. and three-month risk-free interest rate 3.83% p.a. What would be the most cost-efficient way to make the portfolio delta- gamma -neutral based on transactions on either of the options and the underlying shares?
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
Related questions
Question
M2
Transcribed Image Text:The delta and gamma of the portfolio held by an
option dealer are + 178 and -322, respectively. The
gamma of both calls and puts with strike price of
$21 and with three months to maturity is 0.046.
The current market price of the underlying non-
dividend paying share is $25. The implied volatility
of the share is 30% p.a. and three-month risk-free
interest rate 3.83% p.a. What would be the most
cost-efficient way to make the portfolio delta-
gamma -neutral based on transactions on either of
the options and the underlying shares?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education