Strike Price (K1) -

Gamma-Hedge
Strike Price (K) 50 Option 49
Risk-Free
Interest Rate (r) 0.05 ln  S / K    rσ 2 /2  T
d 1=
σ T
Option Volatility 0.2
No. Shares
Underlying Δ= N  d 1 100000× Δ
Option 100000

Shares
Delta - Required to
Week Time to Maturity Stock Price d1 - Option Option Delta Hedge
0 0.3846 49.00 0.05418 0.522 52200
1 0.3654 48.12 -0.10545 0.458 45800
2 0.3462 47.37 -0.25328 0.400 40000
3 0.3269 50.25 0.24373 0.596 59600
4 0.3077 51.75 0.50424 0.693 69300
5 0.2885 53.12 0.75149 0.774 77400
6 0.2692 53.00 0.74310 0.771 77100
7 0.2500 51.87 0.54218 0.706 70600
8 0.2308 51.38 0.45151 0.674 67400
9 0.2115 53.00 0.79443 0.787 78700
10 0.1923 49.88 0.12609 0.550 55000
11 0.1731 48.50 -0.22047 0.413 41300
12 0.1538 49.88 0.10665 0.542 54200
13 0.1346 50.37 0.22889 0.591 59100
14 0.1154 52.13 0.73296 0.768 76800
15 0.0962 51.88 0.70369 0.759 75900
16 0.0769 52.87 1.10326 0.865 86500
17 0.0577 54.87 2.01885 0.978 97800
18 0.0385 54.62 2.32182 0.990 99000
19 0.0192 55.87 4.05086 1.000 100000
20 0.0000 57.25 N/A 1.000 0.000

Call option
expires ITM
 Portfolio Gamma
ln  S / K 1   rσ /2  T
2
d 1= Portfolio Delta
σ T

 N  d 
Δ=
100000×Δ 1
N '  d 1 
N ' d 1  Γ =
Γ= S 0 σ T
S0 σ T

Shares d1 - Delta - Gamma -

Purchased Gamma-Hedge Gamma-Hedge Gamma-Hedge
(Sold) Option Option Gamma - Option Option
52200 0.21706 0.586 0.0655 0.0641
-6400 0.06166 0.525 0.0682 0.0684
-5800 -0.08159 0.467 0.0693 0.0713
19600 0.42040 0.663 0.0674 0.0636
9700 0.68634 0.754 0.0612 0.0549
8100 0.93957 0.826 0.0527 0.0450
-300 0.93778 0.826 0.0550 0.0467
-6500 0.74420 0.772 0.0664 0.0583
-3200 0.66179 0.746 0.0730 0.0649
11300 1.01405 0.845 0.0597 0.0489
-23700 0.35643 0.639 0.0905 0.0856
-13700 0.02234 0.509 0.0965 0.0988
12900 0.36419 0.642 0.1014 0.0954
4900 0.50421 0.693 0.1051 0.0951
17700 1.03033 0.849 0.0861 0.0663
-900 1.02945 0.848 0.0968 0.0730
10600 1.46747 0.929 0.0740 0.0463
11300 2.43940 0.993 0.0197 0.0077
1200 2.83689 0.998 0.0126 0.0033
1000 4.77928 1.000 0.0001 0.0000
0 N/A 1.000 0.000 0.000
 100000× w
Γ
=100000×−
Γ Δ P =−100000 Δ100000 Δ
100000{ w

100000{ w
 1
000
00{ w


 [ ¿ ] Δ− 
[¿] Δ Γ P =−1
000
00 Γ

Gamma-Hedge
Options Required Shares Required
to Maintain Gamma-Hedge to Maintain Delta Shares
Gamma Hedge - Options Hedge - Purchased Portfolio Portfolio
Long (Short) Purchased (Sold) Long (Short) (Sold) Delta Gamma
102180 102180 -59877 -59877 0.48 -0.262
99710 -2470 -52348 7529 -0.25 0.164
97190 -2520 -45388 6960 -0.27 -0.353
105970 8780 -70258 -24870 0.11 -0.308
111480 5510 -84056 -13798 -0.08 0.252
117110 5630 -96733 -12677 -0.14 -0.050
117770 660 -97278 -545 0.02 -0.141
113890 -3880 -87923 9355 0.08 -0.213
112480 -1410 -83910 4013 0.08 -0.048
122090 9610 -103166 -19256 0.05 0.201
105720 -16370 -67555 35611 0.08 -0.368
97670 -8050 -49714 17841 0.03 -0.204
106290 8620 -68238 -18524 0.18 0.066
110520 4230 -76590 -8352 0.36 0.452
129860 19340 -110251 -33661 0.14 -0.282
132600 2740 -112445 -2194 -0.2 -0.200
159830 27230 -148482 -36037 0.07 0.129
255840 96010 -254049 -105567 0.12 -0.032
381820 125980 -381056 -127007 0.36 0.006
0 -381820 0 381056 0 -10.000
0 0 0 0
1
000
00{ w

Γ P =−1
000
00 
Γ [ ¿ ] Γ

Cost (Gain) on Cumulative Cost

Shares Purchased including Interest Interest cost
(Sold) in $m in $m in $m
-0.3762 -0.3762 -0.0004
0.0543 -0.3223 -0.0003
0.0549 -0.2677 -0.0002
-0.2648 -0.5327 -0.0005
-0.2121 -0.7453 -0.0007
-0.2431 -0.9891 -0.0009
-0.0448 -1.0348 -0.0009
0.1481 -0.8876 -0.0008
0.0418 -0.8466 -0.0008
-0.4217 -1.2691 -0.0012
0.5941 -0.6762 -0.0006
0.2008 -0.4760 -0.0004
-0.2805 -0.7569 -0.0007
-0.1739 -0.9315 -0.0009
-0.8320 -1.7644 -0.0017
-0.1605 -1.9266 -0.0019
-1.3449 -3.2734 -0.0032
-5.1724 -8.4490 -0.0082
-6.8716 -15.3288 -0.0148
21.3455 6.0019 0.0057
0.0000 6.0076
Total Cost of Hedge 6007600

Revenue from Short

(ITM) Option
Position 5000000

Net Cost of Hedged

Option Position 1007600