Gamma Hedging Is Needed When Hedging in the Black-Scholes-Merton Model

question 4

Multiple Choice

Gamma hedging is needed when hedging in the Black-Scholes-Merton model because:

• A) there is volatility risk in holding the option
• B) there is interest rate risk in holding the option
• C) when hedging,one can only trade discretely in time and not continuously
• D) when hedging,the interest rate is not constant
• E) there is time decay in holding the option

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