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4. Hedging (20 points). You want to Gamma hedge a European call option c of which the underlying is S. Note that by definition the
4. Hedging (20 points). You want to Gamma hedge a European call option c of which the underlying is S. Note that by definition the purpose of Gamma hedging is to make the new portfolio both A and I neutral. In each question, justify your answer with no more than three sentences (not counting mathmatical formulae). (a) Can you Gamma hedge c with S? (5 points) (b) Can you Gamma hedge c with S and a riskless bond? (5 points) (c) Can you Gamma hedge c with S and a European put option with the same maturity date, strike price, and underlying? (5 points) (d) Can you Gamma hedge c with S and a European call option with a different maturity date, but the same strike price and underlying stock? (5 points) a
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