a. Use the result in the previous exercise to show that if the portfolio is both delta and gamma…
Consider again the exchange option in Example 13.5. Now
August 8, 2017In this exercise, you modify the program from Lab 13-2. If necessary, create a new project named…
August 8, 2017a. Use the result in the previous exercise to show that if the portfolio is both delta and gamma…
a. Use the result in the previous exercise to show that if the portfolio is both delta and gamma neutral, then it replicates the risk free asset, i.e. it has a risk free rate of return which is equal to the short rate r.
b. Show that for a European put option the delta and gamma are given by
