Make the portfolio both gamma neutral and delta neutral

Assignment Help Financial Management
Reference no: EM131893875

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 0.5 2.2 1.8 Call -500 0.8 0.6 0.2 Put -2,000 -0.4 1.3 0.7 Call -500 0.7 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.

(i) What position in the traded option and in sterling would make the portfolio both gamma neutral and delta neutral?

(ii) What position in the traded option and in sterling would make the portfolio both vega neutral and delta neutral?

Reference no: EM131893875

Questions Cloud

What law that that are create to protect law abiding citizen : What are some of the laws that that are created to protect law abiding citizens' information from breaches? Cite your sources using current APA format.
What is the outstanding balance immediately : Each succeeding monthly payment will be 3% lower than the prior one. What is the outstanding balance immediately after the 30th payment is made?
Make power point slides with the creative ideas : Trip advisor - power point 4 or 5 slide - creative idea Advertisement opportunities: social media, targeted companies like the Hilton or Jet Blue.
Time value of money : Darlene needs an investment that will generate income of $300 at the end of year 1, $300 at the end of year 2, $500 at the end of year 3
Make the portfolio both gamma neutral and delta neutral : What position in the traded option and in sterling would make the portfolio both gamma neutral and delta neutral?
Us inflation expectation for the time the bond : US inflation expectation for the time the bond will be issued increased from 0.5% per year to 4.5% per year. The current price of the bond must be?
What is the net present value of each alternative : Should you buy the equipment or lease it at $75,000 per month for 60 months with maintenance included? What is the net present value of each alternative?
Hedge against the prospect of higher corn prices : To hedge against the prospect of higher corn prices, the company purchases 5 call options on corn with a strike price of $3.75 and a cost of $0.14703
What is your incremental cash flow from selling the machine : If you sell the machine right now (after three years of depreciation) for $794,000, what is your incremental cash flow from selling the machine?

Reviews

Write a Review

Financial Management Questions & Answers

  What will the expected return and beta on the portfolio

What will the expected return and beta on the portfolio be after the purchase of the Omega stock?

  Determine the two possible stock prices for the next period

Determine the two possible stock prices for the next period.- Determine the intrinsic values at expiration of a European call option with an exercise price of $25.

  Concerned about your retirement

You are 21 years old and are concerned about your retirement. You want to live comfortably when you retire 49 years from now. Since you won’t have a house payment (you expect to have the mortgage paid off by then), you figure you will need only $4,00..

  Use of discretionary sources of financing

Tulley Appliances Inc. projects next year's sales to be $21.25 million. Current sales are $17 million, based on current assets of $5.67 million and fixed assets of $8.50 million. Based on your projections, and assuming that the $200,000 expansion in ..

  What is the expected return-required return on this stock

What is the required return on this stock? (hint: use CAPM). What is the expected return on this stock, given its current price? What is the fair price of the stock? Is this stock fairly valued, overvalued, or undervalued?

  What are the net cash flows of the project each year

H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,250,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to gen..

  Both machines will be depreciated on a straight-line basis

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,078,000 and will last for six years. Variable costs are 30 percent of sales, and fixed costs are $220,000 per year. The required return i..

  Using the corporate valuation model

Assume today is December 31, 2013. Barrington Industries expects that its 2014 after-tax operating income [EBIT(1 – T)] will be $400 million and its 2014 depreciation expense will be $70 million. Using the corporate valuation model, what should be th..

  What is the required return on the company stock

Burress Inc. is expected to maintain a constant 7.18 percent growth rate in its dividends, indefinitely. If it has a dividend yield of 4.41 percent, what is the required return on the company’s stock?

  Different methods of accounting for stock investments

What are various ways different methods of accounting for stock investments (Trading, Available for Sale and Equity method ) are shown on Statement of cashflows

  Marketing potential of brightly colored bowling balls

Baldwin Company Case The Baldwin Company investigated the marketing potential of brightly colored bowling balls,

  Tm owns an independent bookstore located in philadelphia

tom owns an independent bookstore located in philadelphia. tom has to decide on the best order quantity for a new

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd