Question
A bank's position in OTC options on the dollar-euro exchange rate has a delta of -30,000 and a vega of -50,000. The exchange rate (dollars
A bank's position in OTC options on the dollar-euro exchange rate has a delta of -30,000 and a vega of -50,000. The exchange rate (dollars per euro) is 1.20 and the volatility of the exchange rate is 15% per annum.
a. What position in the currency would make the bank's position delta neutral?
b. After a short period of time, the volatility of the exchange rate has changed to 15.8% per annum. Estimate the change in the value of the bank's position in OTC options.
c.An exchange traded currency option has a delta of 0.52 and a vega of 1.80.What position in the currency and the traded option would make the bank's OTC option position, delta neutral andveganeutral?
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