1 / 24

Gamma Hedging

The Gobs of Money Machine. Wilhelm's Warriors. No Hedgetation. Gamma Hedging. Critical Thinking. Tournament is in two weeks Full-length test tournaments available. A sk via Whatsapp. Confidential Peer Evaluation. May affect your grade.

chantal
Download Presentation

Gamma Hedging

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Gobs of Money Machine Wilhelm's Warriors No Hedgetation Gamma Hedging

  2. Critical Thinking • Tournament is in two weeks • Full-length test tournaments available. Ask via Whatsapp

  3. Confidential Peer Evaluation May affect your grade

  4. Example diagnostic: why is the smart hedger stuck ?

  5. Main parameters to tweak • Frequency of hedging (HedgingToday) • Family Delta threshold (NeedToHedge) • Type of transaction preferences(CalcCandidateRecScores) • A-E options preferences (scoring rules) • Delta threshold (CalcQtyNeededToHedge) • Family delta target(CalcQtyNeededToHedge) • Max buy cushion (MaxPurchasePossible) • Available cash cushion (AvailableCashIsLow) • Max margin cushion (TooCloseToMaxMargins) • Max short cushion (MaxShortWithinConstraints)

  6. Optional mini-projects • auto dividend cashing (scheduled transactions) • gamma hedger • differential thresholds for hedging • differential family deltas • intentional crashes • edit portfolio on the fly • bang for the buck (synch/auto) • auto/synch training • july options • delta for dividend-paying securities • "extra profits" button • error viewer

  7. Hedging Gamma, Vega, Theta & Rho

  8. Delta Neutral Portfolio Decay Payoff Put portfolio Call portfolio Stock price Source: Delta Gamma Hedging and the Black-Scholes Partial Differential Equation - S. Raju, JEFE 2012

  9. Delta & Gamma neutral Portfolios Payoff Call portfolio Put portfolio Stock price Source: Delta Gamma Hedging and the Black-Scholes Partial Differential Equation - S. Raju, JEFE 2012

  10. Gamma • Family Delta (D) measures the change in portfolio valueas the underlier’s price S changes (~speed). • Family Gamma (G) measures the rate of change in portfolio value as S changes (~acceleration).

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

  12. How to Calculate Gamma • Gamma = N’(d1) SsÖ t • N’(d1) = e –(d1)2/2 Ö (2 p) • d1 as in Black Scholes Gamma Stock price S Strike

  13. Gfamily= S qtyi * gi Gamma of a Portfolio of Related Securities

  14. Gamma-Neutral Portfolio • More stablethan a delta neutral-only. • Cannot use the stock to reach Gamma neutrality because the stock has Gamma = 0 1) Gportfolio <> 0 2) Gportfolio + Gxqtyx = 0 3) qtyx = -Gportfolio / Gx • Warning: Acquiringqtyx will disturb Delta neutrality. You will need to rebalance.

  15. Delta Gamma Delta It’s a financial strategy, not a sorority. • Find out what you need to achieve Delta neutrality. • Find out what you need to achieve Gamma neutrality. • Find out what you need to re-achieve Delta neutrality. Stock is ideal because it will not affect Gamma.

  16. Three Dark Horses • Simultaneous Delta Gamma • Conditional Gamma • Synthetics Come and see me – not on the last day!

  17. Simultaneous Delta Gamma Dportfolio + dx1 qtyx1 + dx2 qtyx2 = 0 Gportfolio + gx1 qtyx1 +gx2 qtyx2 = 0 All known except qty x1 and qty x2 {

  18. Conditional Delta Gamma • If below target -> delta only elseDelta + Gamma

  19. Offset the Position with aSynthetic Security Profit & Loss Perfect hedge, but costly. Synthetic Short position Long positionto hedge Stock price Total Payoff

  20. Put-Call Parity For European Ps and Cs that have the same strike K, and expire by the same time t: P + S = C + K e-rt We can solve for S, P, or C, effectively synthesizing a security with a combination of the other two and some interest-earning cash. Example: S = C + Ke-rt – P and - S = - C - Ke-rt+ P

  21. WINIT What Is NewIn Technology?

  22. The RoboTrader Demo

  23. The two timers (simplified) Timer 2 (seconds on screen) Timer 1 (spy) Start Check the date on the DB New date? Decrease the seconds by 1 No Yes Set seconds to 59 Run daily routine Less than 0? No Yes

More Related