Download presentation

Presentation is loading. Please wait.

Published byDayton Stairs Modified over 3 years ago

1
Financial Information Management Gamma Hedging Wilhelm's Warriors No Hedgetation The Gobs of Money Machine The Ira Harris Experience

2
Critical Thinking Good job overall Easy meter Today office hours: 4-6

3
The Hedge Tournament Questions?

4
Price generation SP500SP500 beta + noise STOCKS Bids and Asks OPTIONS Bids and Asks B.S.+ noise real g, real volatility real initial prices real beta, real volatility NOT random!

6
Confidential Peer Evaluation N AME : O VERALL CONTRIBUTION TO TEAM SUCCESS T EAM W ORK Q UALITY OF WORK A MOUNT OF WORK K NOWLEDGE OF THE PROJECT AREA I DEAS CONTRIBUTED TO THE PROJECT O RGANIZATION OF TEAM WORK ( ADMIN.) T EAM R APPORT L EADERSHIP E NTHUSIASM, ATTITUDE, INITIATIVE R ESPECT FOR OTHERS D EPENDABILITY, GOOD TEAM PLAYER M EETING ATTENDANCE, PUNCTUALITY May affect your grade

7
Financial Information Management Hedging Gamma, Vega, Theta & Rho

8
Gamma Delta ( ) measures the change in portfolio value as the underlier’s price S changes (~speed). Gamma ( ) measures the rate of change in portfolio value as S changes (~acceleration).

9
Meaning of Gamma Gamma is small If Gamma is small (abs.), small changes in S will not affect much Delta (and your portfolio value), so there is less need to take immediate rebalancing action. Gamma is large If Gamma is large, small changes in S will affect Delta (and your portfolio value) significantly, so there is a stronger need to take immediate rebalancing action.

10
Using Gamma During small periods of time t 2 -t 1 Portfolio = ½ (S 2 -S 1 ) 2 Example: If you do not rebalance and the underlier price drops from $52 to $50, the change of value in a Delta-Neutral Portfolio is approximately = ½ (S 2 -S 1 ) 2 = 0.5 * (-10,000) * (52-50) 2 = -$20,000 ~

11
How to Calculate Gamma Gamma = N’(d1) S t N’(d1) = e –(d1) 2 /2 (2 ) d1 as in Black Scholes Strike Stock price S Gamma

12
Gamma-Neutral Portfolio More stable than a delta neutral-only. Cannot use the stock to reach Gamma neutrality because the stock has Gamma = 0 1) portfolio <> 0 2) portfolio + x qty x = 0 3) qty x = - portfolio / x Warning: Acquiring qty x will disturb Delta neutrality. You will need to rebalance.

13
Delta Gamma Delta It’s a strategy, not a sorority. Find out what to acquire to achieve Delta neutrality. Find out what to acquire to achieve Gamma neutrality. Find out what to acquire to re-achieve Delta neutrality. Stock is ideal because it will not affect Gamma.

14
More Dark Horses Simultaneous Delta Gamma Conditional Gamma Extreme transaction costs minimization Come and see me – not on the last day!

15
Theta, Vega, and Rho Conceptually similar to Delta Theta = change in portfolio value when time changes Vega = change in portfolio value when the volatility changes Rho = change in portfolio value when the rate of interest changes

16
Financial Information Management WINIT What Is New In Technology?

17
Financial Information Management Homework Spartan Trader

19
Your Opinion Matters Name A couple of things that you are learning from the class Things that you like/that can be improved Is the class getting you to think on your own? Concerns about the HT

Similar presentations

OK

Options: Greeks Cont’d. Hedging with Options Greeks (Option Price Sensitivities) delta, gamma (Stock Price) theta (time to expiration) vega (volatility)

Options: Greeks Cont’d. Hedging with Options Greeks (Option Price Sensitivities) delta, gamma (Stock Price) theta (time to expiration) vega (volatility)

© 2018 SlidePlayer.com Inc.

All rights reserved.

By using this website, you agree with our use of **cookies** to functioning of the site. More info in our Privacy Policy and Google Privacy & Terms.

Ads by Google

Ppt on sixth sense technology pdf Ppt on democratic and non democratic countries Download ppt on civil disobedience movement in india Ppt on training and development of employees Ppt on effect of global warming on weathering Ppt on school annual function Ppt on unemployment in india Ppt on non ferrous minerals definition Ppt on model view controller pattern Ppt on hindu religion pictures