5 points Values of two hedged portfolios, i.e. net value of short option and hedging position in the underlying. value of hedged position 10.20 10.15 10.10 10.05 10.00 time 0.6 0.8 1.0 9.90 hedge A hedge B An investment bank sells two identical European options, and wants to hedge the resulting exposure to the underlying. One of the options is hedged using hedge A, while the other is hedged using hedge B. From the results depicted in Figure 1, (assuming away transaction costs) we can conclude that: Hedge A employed gamma hedging. Hedge B employed gamma hedging. Hedge A performed better than hedge B. Hedge B performed better than hedge A. None of the above. 5 points How can we Delta-Gamma hedge selling a put? Sell a call, buy the underlying Buy a call, short sell the underlying Buy a put, buy the underlying Buy a call, buy the underlying 5 points Values of two hedged portfolios, i.e. net value of short option and hedging position in the underlying. value of hedged position 10.20 10.15 10.10 10.05 10.00 time 0.6 0.8 1.0 9.90 hedge A hedge B An investment bank sells two identical European options, and wants to hedge the resulting exposure to the underlying. One of the options is hedged using hedge A, while the other is hedged using hedge B. From the results depicted in Figure 1, (assuming away transaction costs) we can conclude that: Hedge A employed gamma hedging. Hedge B employed gamma hedging. Hedge A performed better than hedge B. Hedge B performed better than hedge A. None of the above. 5 points How can we Delta-Gamma hedge selling a put? Sell a call, buy the underlying Buy a call, short sell the underlying Buy a put, buy the underlying Buy a call, buy the underlying