What is the reason for executing a gamma hedge?
A)the volatility can change
B)the stock price can make a large move
C)the stock price moves are too small for a delta hedge to work
D)there is no true risk-free rate
E)none of the above

Question

Quizplus · Accepted Answer

Gamma hedging is primarily executed to protect a portfolio against the risk associated with large movements in the stock price. It is a second-order risk management tool that adjusts for the curvature of the portfolio's value in relation to the underlying stock price, beyond the linear approximation provided by delta hedging.

What Is the Reason for Executing a Gamma Hedge