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....
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.