A company uses delta hedging to hedge a portfolio of long positions in put and call options on a currency
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A company uses delta hedging to hedge a portfolio of long positions in put and call options on a currency

Problem 17.13.

A company uses delta hedging to hedge a portfolio of long positions in put and call options on a currency. Which of the following would give the most favorable result? 
a) A virtually constant spot rate 
b) Wild movements in the spot rate 
Explain your answer. 
Hint
A long position in either a put or a call option has a positive gamma. From Figure 17.8, when gamma is positive the hedger gains from a large change in the stock price and loses from a small change in the stock price....

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