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Gamma Hedging The Ira Harris Experience Wilhelm's Warriors
No Hedgetation The Gobs of Money Machine Gamma Hedging
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Critical Thinking Tournament is in 12 days! Software clinic is open
Full-length test tournaments available
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Confidential Peer Evaluation
May affect your grade Name: Overall contribution to team success Team Work Quality of work Amount of work Knowledge of the project area Ideas contributed to the project Organization of team work (admin.) Team Rapport Leadership Enthusiasm, attitude, initiative Respect for others Dependability, good team player Meeting attendance, punctuality
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Next meetings High frequency trading Bitcoin/Blockchain
Disruptive innovation Digital platforms / network effects IoT VBA for macros in excel Code lab: how does the smart hedger work?
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Example diagnostic: why is the smart hedger stuck ?
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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)
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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
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What Is New In Technology?
WINIT What Is New In Technology?
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Hedging Gamma, Vega, Theta & Rho
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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
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Gamma Delta (D) measures the change in portfolio value as the underlier’s price S changes (~speed). Gamma (G) measures the rate of change in portfolio value as S changes (~acceleration).
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Meaning of Gamma 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. 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.
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How to Calculate Gamma Gamma = N’(d1) SsÖ t N’(d1) = e –(d1)2/2
Ö (2 p) d1 as in Black Scholes Gamma N’ is the prob density function for a standard normal distribution. Stock price S Strike
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Gamma of a Portfolio of Related Securities
Gfamily = S qtyi * gi
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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
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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) Gportfolio <> 0 2) Gportfolio + Gx qtyx = 0 3) qtyx = -Gportfolio / Gx Warning: Acquiring qtyx will disturb Delta neutrality. You will need to rebalance.
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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.
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Two More Dark Horses Simultaneous Delta Gamma Conditional Gamma
Come and see me – not on the last day!
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Simultaneous Delta Gamma
Dportfolio + dx1 qtyx1 + dx2 qtyx2 = 0 Gportfolio + gx1 qtyx1 + gx2 qtyx2 = 0 All known except qty x1 and qty x2 {
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