Home / Questions / A financial institution has the following portfolio of over-the-counter options on the
A financial institution has the following portfolio of over-the-counter options on the pound sterling (GPB): Gamma of option Vega of option 1.9 Type Call Put Call Position -1,500 -2,500 -500 Delta of option 0.6 -0.5 0.8 1.4 0.8 1.9 1.5 The institution has access to the following traded derivatives on the pound: • Derivative A with a delta of 0.7, a gamma of 1.5, and a vega of 0.9. • Derivative B with a delta of 0.2, a gamma of 0.6, and a vega of 0.6. a. What position in derivative A and the pound, would make the portfolio both gamma neutral and delta neutral? b. What position in derivative B and the pound, would make the portfolio both vega neutral and delta neutral? c. Using both contracts and the pound, how could the portfolio be made delta, gamma, and vega neutral?
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