Financial Risk Manager Handbook + Test Bank: FRM Part I / Part II

Author:Jorion, Philippe & GARP (Global Association of Risk Professionals) [Jorion, Philippe]
Language: eng
Format: mobi
Publisher: John Wiley and Sons
Published: 2010-12-27T16:00:00+00:00

a. Now: buy 50 shares of stock; later: buy 6 shares of stock.

b. Now: buy 50 shares of stock; later: sell 6 shares of stock.

c. Now: sell 50 shares of stock; later: buy 6 shares of stock.

d. Now: sell 50 shares of stock; later: sell 6 shares of stock.

EXAMPLE 17.7: FRM EXAM 2009—QUESTION 5-3

Trader A purchases a down-and-out call with a strike price of USD 100 and a barrier at USD 96 from Trader B. Both traders need to unwind their delta hedge at the barrier. Which trader is more at risk if there is a price gap (discontinuity) that prevents them from exiting the trade at the barrier?

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