medium · FRM Part 1
A Δ-neutral portfolio consists of long calls and short puts on the same underlying with the same strike and expiration.
What is the net Γ of this portfolio?
- Infinite, because the Δs of calls and puts move in opposite directions.
- Zero, because the positive Γ of the calls is cancelled by the negative Γ of the short puts.
- Double the Γ of a single call.
- Positive, because the call Γ always dominates in a Δ-neutral setup.
Sign up free to see the explanation and track your rank →
More FRM Part 1 practice
- According to the CAPM, which type of risk are investors compensated for bearing?
- What specific variety of liquidity risk is being described?
- How is 'Risk Capacity' distinguished from 'Risk Appetite' in a standard risk governance fr
- If a loan has a Probability of Default (PD) of 2.0%, an Exposure at Default (EAD) of $1,00
- If two portfolios have the same Sharpe ratio but one has positive skewness and the other h
- In a 'Liquidity Spiral', what is the primary channel by which market liquidity risk and fu
- In the context of the CAPM, what is the definition of 'Alpha' (α)?
- In the risk decomposition formula σ^2_i = β^2_i σ^2_M + σ^2_ε, what does σ^2_ε represent?