The gamma and vega of delta-neutral portfolio

Assignment Help Financial Management
Reference no: EM131087714

The gamma and vega of a delta-neutral portfolio are 75 per $ and 15 per %, respectively. What will happen to the value of the portfolio when there is a shock to the market causing the underlying asset price to decrease by $4 and its volatility to increase by 5%?

A. The value of the portfolio will decrease by $600.75.

B. The value of the portfolio will decrease by $675.

C. The value of the portfolio will increase by $600.75.

D. The value of the portfolio will increase by $675.

Reference no: EM131087714

Questions Cloud

What should be the increase in earnings per share : Last year, Cayman Corporation had sales of $30,000,000, total variable costs of $13,500,000, and total fixed costs of $5,000,000. In addition, they paid $3,000,000 in interest to bondholders. Cayman has a marginal tax rate of 35 percent. If Cayman's ..
An overall positive effect on short-term profits : Competency 4.2 Mark Johnson is controller for a Pharmaceutical company. During the company’s midyear review, Johnson notes that the company’s R&D expenditures are already $3.0 billion, nearly 40% above the midyear target. In a meeting with the CFO la..
What is its current yield : A bond with a par value of $1,000.00 and a semiannual coupon has a nominal yield to maturity of 6.60% and a current price of $1,035.00. If the bond has 8 years to maturity, what is its current yield?
New high-efficiency digital-controlled flange-lipper : The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $90,000. It had an expected life of 10 years when it was bought and is being depreciated by the straight-line method by $9,000 per year. A new high-efficiency digital..
The gamma and vega of delta-neutral portfolio : The gamma and vega of a delta-neutral portfolio are 75 per $ and 15 per %, respectively. What will happen to the value of the portfolio when there is a shock to the market causing the underlying asset price to decrease by $4 and its volatility to inc..
Replacing the wood steamer : The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer, purchased just 2 years ago, is being depreciated on a straight-line basis and has 6 years of remaining life. Should it ..
Purchasing of medicines already on the market : What negative impact did Martin Shkreli's practice of reverse mergers and purchasing of medicines already on the market, only to sell them at higher prices have?
The total value-debt plus equity : The total value (debt plus equity) of Wilson Dover Inc. is $500 million and the face value of its 1-year coupon debt is $200 million. The volatility (σ) of Wilson Dover's total value is 0.60, and the risk-free rate is 5%. Assume that N(d1) = 0.9720 a..
The vega of derivatives portfolio dependent : The vega of a derivatives portfolio dependent on the US dollar – Japanese Yen exchange rate is 250 ($ per %). What is the effect on the portfolio of an increase in the volatility of the exchange rate from 10% to 9.5%?

Reviews

Write a Review

Financial Management Questions & Answers

  Total interest amount you will pay over the life of the loan

Loan Amortization Problem Type your full name in the following order First Middle Last Number of letters in full name = Now assume that your annual salary = number of letters in your full name x $45,000 and that the bank you want to borrow from. Calc..

  Calculate the firms weighted average cost of capital

The firm plans to spend $100,000,000 on new capital projects. New bonds can be sold at par with an 8% coupon rate. Preferred stock can be sold with a dividend of $2.75, a par value of $25.00, and a floatation cost of $2.00 per share. Common stock is ..

  Stock price according to the constant growth dividend model

Marco Chip, Inc just issued zero-coupon bonds with a par value of $1000. The bond has a maturity of 14 years and a yield to maturity 0f 6.96%, compound semi-annually. What is the current price of the bond? The last dividend of Delta, Inc was $2.69, t..

  What is their yield to call

Sadik Inc.'s bonds currently sell for $1,270 and have a par value of $1,000. They pay a $105 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100. What is their yield to call (YTC)?

  Divide corporation has bonds on the market

Ashes Divide Corporation has bonds on the market with 17 years to maturity, a YTM of 10.0 percent, and a current price of $1,216.50. The bonds make semiannual payments. What must the coupon rate be on these bonds?

  What is the bonds yield to maturity-bonds current yield

A 20-year, 10 percent semiannual coupon bond, with a par value of $1,000 sells for $1,200 (assume that the bond has just been issue today). What is the bond's yield to maturity? What is the bond's current yield?

  Operating income from financial services

The December 28, 2013 income statement of Snap-On Incorporated includes the amounts shown below. The company paid dividends of $93.2 (in millions). Prepare the closing entries for the company for 2013. (in millions) Net sales $3,056.5 Deferred revenu..

  Divided between capital gains yield and dividend yield

Suppose you know that a company’s stock currently sells for $62 per share and the required return on the stock is 12 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield.

  What is the underlying asset for option

What kind of an option is this, in terms of the three investment project options we discussed (timing, follow-on, abandon)? Why - Is this like a put option or like a call option?

  Next two annual dividends will be in the amount

Last week, Onboard Co. has announced that the next two annual dividends will be in the amount of $2.3 and $4.19, respectively. After that, the dividends will increase by 3.6 percent annually. The required return on this stock is 12.98 percent. What i..

  Recall the mechanism behind continuous compounding

Recall the mechanism behind continuous compounding: the whole period is divided into increasing numbers of smaller and smaller sub-periods, and the resulting effective rate is calculated as a limit of the effective rates under increasing number of su..

  Divided between capital gains yield and dividend yield

Suppose you know that a company’s stock currently sells for $65.90 per share and the required return on the stock is 12 percent. You also know that the total return on the stock is evenly divided between capital gains yield and dividend yield.

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