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Question 5 (6 marks) A bank has written 1000 European call options and 2000 European put options on gold futures. The options mature in 3 months and have an exercise price of $1200/ounce. The futures contract underlying the options has a delivery in 4 months and a price of $1220/ounce. The volatility of the gold futures is 15% and the continuously compounded risk free rate is 4% per annun a) What initial position (buy/sell and number of units) is necessary for delta hedging the call option position if i) 4 month gold futures are used; (1 mark) ii) gold itself is used; (1 mark) iii) 6 month gold futures are used. (1 mark) b) What initial position (buy/sell and number of units) is necessary for delta hedging the put option position if i) 4 month gold futures are used, (1 mark) ii) gold itself is used; (1 mark) iii) 6 month gold futures are used. (1 mark)

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Bue こ1082 〉 Yes.gotof heit und Yes goldl thell uel 12.8 7100osa S be an ニバチ420D

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