You are working for a financial institution and one of your clients wants to buy 3000 contracts of European Put Options on Microsoft with a strike price of 250 and maturity in 10 weeks. The annual interest rate is 1% and the implied volatility is 40%. Generate 200 daily datapoints of the underlying stock using an appropriate distribution. You are asked to hedge your short options position and to highlight what would be your performance as you vary the frequency of hedging (weekly, daily, hourly).
How frequently should you hedge?
Is it in your interest to hedge the gamma exposure?