Question

what are the examples of linear securities (no exposure to gamma)?

and what are the examples of instruments that has gamma exposure?

Answer 1

Gamma is the rate of change in the delta value of an option with respect to changes in the underlying price of the security.

Non-Linear Instruments like Options have a gamma exposure i.e Long Options have a +ve gamma value and Short Options have a -ve gamma. Other examples include:

(a) Interest Rate Swap

(b) Black Scholes Model

(c) Constant Maturity Swaps

Linear Securities whose payoff is linear have no exposure to gamma are:

1. Future Contracts

2. Forwards