Question

Explain why immunizing a portfolio and making it Gamma neutral only may be ineffective in removing underlying price risk.

Answer 1

Immunizing portfolio and making it Gaama neutral is only effective if change of delta's rate is close to zero even underlying rises or falls .

So, price risc remains ineffective for the underlying price risc after immunization of portfolio and making it Gaama neutral. Gaama neutral position is an optional position which restricts change of delta.

It's achieved by adding optional contracts to the portfolio in contrast to current position. It's smtime also called delta neutral position for locking up profits by achieving Gaama neutral position .