Vulcan Gravitational Fracking (VGF) stock sells for $77 a share. The annual interest rate is...
70.2K
Verified Solution
Link Copied!
Question
Finance
Vulcan Gravitational Fracking (VGF) stock sells for $77 a share. The annual interest rate is 8%, and the annual standard deviation on VGF stock is 20%. The time to expiration of all options is 9 months. You are short 1000 put options on TASF with a strike price of 75. To hedge you position, you can buy or sell VGF stock, or another put options on VGF at the money (i.e. with a strike price of 77).
Given all this:
A: Derive the position you will take if you want to delta hedge your position.
B: Derive the position you will take if you want to delta-gamma hedge your position.
C: Given your answers in A and B, graph (on the same graph) the net gain or loss in your positions if the price of VGF jumps to X, X a number between 1 and 100. (So youll want two lines on your graph, one with the return to delta hedging and one with the return to delta-gamma hedging.)
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
