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A British financial institution has written 1,900 call options and written 2,800 put options on...

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Finance

A British financial institution has written 1,900 call options and written 2,800 put options on the euro (EUR). (Each option is to buy or sell 1 EUR.) The call options have a delta of 0.55 and gamma of 1.7, while the put options have a delta of -0.45 and gamma of 1.3.

i) Calculate the portfolios delta and gamma

ii) Show how the institution can take a position in the currency and use an exchange-traded put option on the EUR with a delta of -0.55 and gamma of 1.35 to make its portfolio delta and gamma neutral.

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