There are a number of instances where a seemingly linear deal can show Gamma . Here are a few of them :
1. Where the deal could have a formula where there is a discontinuity in the value function. For example some complex gas deals have different pricing formula depending on sub-calculation parameters being over/below certain values. At these points the deal value is discontinuous and this can/will show up as a gamma exposure. Even a Rounding function within a formula can create a discontinuity.
2. Where the Intrinsic Spread 0/1 pricing model is used as there is a discontinuity near where the spread is 0 .
3. Can see gamma on the interest rate curves and this is because the Discount Factor which is whats being used on the trade is not a linear function of the Interest rate which is what is being shocked to calculate delta/gamma.
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