A given portfolio of currency-based positions (on the Euro) has a delta of 15,000, a gamma...

A given portfolio of currency-based positions (on the Euro) has a delta of 15,000, a gamma of -2000, and vega of -1000 (per 1%). Estimate what happens to the value of this portfolio if the dollar price of a Euro decreases from $1.19 to $1.15, and the volatility underlying options increases from 7.5% to 8.0%.

Expert Solution

delta = change in price of call option / change in dollar price

Therefore, if there is a change of 0.04$ in dollar price, there will be an increase in delta.

gamma = rate of change in call option / rate of change in dollar price

Hence, gamma will increase

vega = change in price of call option / change in volatility

So, in increase in volatility, there will be a decrease in vega

jeff jeffy answered 2 years ago

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