1. You wish to hedge a $10 million stock portfolio with a portfolio beta equal to 1. What hedging transaction is required to hedge the stock portfolio? Specify the type of option and how many you need to buy or sell.
2. Bond valuation Lahey Industries has outstanding a $1,000 par-value bond with an semi annual coupon interest rate. The bond has 12 years remaining to its maturity date with YTM 10%. If current value of bond is $920 a. If interest is paid semi annually, find the annual coupn rate?
3. A three month 80 put has a gamma of 0.0078 and a vega of 5.8837. The three month 120 call has a gamma of 0.0083 and a vega of 4.140. Suppose you target a vega of 0.5 and a gamma of -0.5. Determine the positions in these options that meet your targets.