QUESTION THREE A financial institution has the following portfolio of over-the-counter options written on Minstagram sha

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Question Three A Financial Institution Has The Following Portfolio Of Over The Counter Options Written On Minstagram Sha 1 (125.97 KiB) Viewed 72 times

QUESTION THREE A financial institution has the following portfolio of over-the-counter options written on Minstagram shares: Type Position Delta of Option Gamma of Option Vega of Option Call -3,000 0.65 1.5 1.30 Call -2,000 0.70 0.6 0.85 Put -750 -0.35 1.8 0.70 Call -50 0.70 1.7 1.40 A traded option is available with a Delta of 0.8, a Gamma of 1.1, and a Vega of 0.45. a) What position in the traded option and in Minstagram shares would make the portfolio both Gamma and Delta neutral? (5 marks) b) Suppose the financial institution is trying to minimise their exposure to changes in the underlying asset price. Explain why the financial institution may want to keep their portfolio both Delta and Gamma neutral. (10 marks) c) Suppose there is a second traded option with a Delta of 0.65, a Gamma of 0.4, and a Vega of 0.8. What position in the traded option and in Minstagram shares would make the portfolio Delta-Gamma-Vega neutral? (10 marks) [TOTAL: 25 MARKS ook Air