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Unformatted text preview: T . The payo² o± the Gamma swap can thus be aproximated by V ( T ) = Z T S t d [log S, log S ] t . Use similar arguments as in class to derive the ±ollowing representation ±or V ( T ), which can be interpreted as a hedge ±or the Gamma swap in terms o± an at-the-money ±orward contract, a dynamic trading strategy, and port±olios o± put and call options: V ( T ) = 2(log S +1)( S T − S ) − Z T 2(log S t +1) dS t + Z S ( K − S T ) + 2 K dK + Z ∞ S ( S T − K ) + 2 K dK. Exercise 3: Exercise 7.1 on page 332 in Shreve’s book. Exercise 4: Exercise 8.3 on page 370 in Shreve’s book. 1...
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This note was uploaded on 08/05/2008 for the course ORIE 569 taught by Professor Alexanderschied during the Spring '08 term at Cornell.
- Spring '08