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A financial institution has the following portfolio of over-the-counter options on an underlying asset: Type Position Delta of Option Gamma of Option Vega of Option
A financial institution has the following portfolio of over-the-counter options on an underlying asset:
Type | Position | Delta of Option | Gamma of Option | Vega of Option |
Call | -700 | 0.4 | 2.0 | 1.6 |
Call | -600 | 0.7 | 0.5 | 0.4 |
Put | -200 | -0.3 | 1.4 | 0.8 |
Call | -400 | 0.6 | 1.9 | 1.3 |
A traded option is available with a delta of 0.8, a gamma of 1.4, and a vega of 0.7.
- Can the portfolios vega be changed by taking a position in the underlying asset? Explain your answer. (2 mark)
- Estimate delta, gamma and vega of the portfolio (4 marks)
- How could the portfolio be made delta and vega neutral? (round your answers for the option contracts to the nearest whole number) (4 marks)
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