1. Why is it necessary for nancial institutions to hedge their op-
tion positions?
2. Why is option hedging a complicated a air?
3. What is meant by:
(i) Delta hedging
(ii) Gamma hedging
(iii) Vega hedging
4. What is meant by the delta, gamma, theta, vega, and rho of
options?
5. How would you make a portfolio gamma-neutral?
adjustments in the portfolio such that the portfolio remains
delta-neutral.
Vega is a measure of the sensitivity of the option price to
changes in the volatility of the underlying asset price. e
portfolios can also be made vega-neutral. ...
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