A financial institution has the following portfolio of over the counter options on sterling Type Position Delta of Option Gamma of Option Vega of Option Call 1,000 0 50 2 2 1 8 Call 500 0 80 0 6 0 2 Put 2,000 0 40 1 3 0 7 Call 500 0 70 1 8 1 4 A traded option is available with a delta of 0 6, a gam...

The delta of the portfolio is 1 000 050 500 080 2000 040 500 070 450 The gamma of the portfoli ...

A financial institution has the following portfolio of over-the-counter options on sterling: Type Position Delta of Option

Question:

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

Type	Position	Delta of Option	Gamma of Option	Vega of Option
Call	−1,000	0.50	2.2	1.8
Call	−500	0.80	0.6	0.2
Put	−2,000	−0.40	1.3	0.7
Call	−500	0.70	1.8	1.4

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?

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...