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tT
发表于 2011-3-25 12:20 | 只看该作者

Reading 62: Option Markets and Contracts-LOS f 习题精选

2011, face, following, affect, center
Session 17: Derivative Investments: Options, Swaps, and Interest Rate and Credit Derivatives
Reading 62: Option Markets and Contracts

LOS f: Explain the gamma effect on an option's price and delta and how gamma can affect a delta hedge.

 

 

Which of the following is the best approximation of the gamma of an option if its delta is equal to 0.6 when the price of the underlying security is 100 and 0.7 when the price of the underlying security is 110?

A)
 0.10.
B)
 0.01.
C)
 1.00.

 

The gamma of an option is computed as follows:

Gamma = change in delta/change in the price of the underlying = (0.7 – 0.6)/(110 – 100) = 0.01

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1215

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2#
发表于 2011-3-25 14:04 | 只看该作者

How is the gamma of an option defined? Gamma is the change in the:

A)
 vega as the option price changes.
B)
 delta as the price of the underlying security changes.
C)
 option price as the underlying security changes.

Gamma is the rate of change in delta. It measures how fast the price sensitivity changes as the underlying asset price changes.

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3#
发表于 2011-3-25 14:04 | 只看该作者

When an option’s gamma is higher:

A)
 delta will be higher.
B)
 a delta hedge will perform more poorly over time.
C)
 a delta hedge will be more effective.

Gamma measures the rate of change of delta (a high gamma could mean that delta will be higher or lower) as the asset price changes and, graphically, is the curvature of the option price as a function of the stock price. Delta measures the slope of the function at a point. The greater gamma is (the more delta changes as the asset price changes), the worse a delta hedge will perform over time.

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4#
发表于 2011-3-25 14:04 | 只看该作者

Gamma is the greatest when an option:

A)
 is deep in the money.
B)
 is deep out of the money.
C)
 is at the money.

Gamma, the curvature of the option-price/asset-price function, is greatest when the asset is at the money.

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5#
发表于 2011-3-25 14:05 | 只看该作者

Two call options have the same delta but option A has a higher gamma than option B. When the price of the underlying asset increases, the number of option A calls necessary to hedge the price risk in 100 shares of stock, compared to the number of option B calls, is a:

A)
 larger positive number.
B)
 smaller (negative) number.
C)
 larger (negative) number.

For call options larger gamma means that as the asset price increases, the delta of option A increases more than the delta of option B. Since the hedge ratio for calls is – 1/delta, the number of calls necessary for the hedge is a smaller (negative) number for option A than for option B.

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