Gamma Is a Risk Measure That Is Related to the Volatility

question 31

Multiple Choice

Gamma is a risk measure that is related to the volatility (particularly jump-risk) of the underlying stock. Which of the following is most valid?

• A) When you buy vanilla call options it is useful to hedge away gamma to minimize jump risk.
• B) When you sell vanilla put options it is useful to hedge away gamma to minimize jump risk.
• C) Both (a) and (b).
• D) Neither (a) nor (b).

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