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Hi sir,
Regarding 2010 dec q3, we were asked to calculate put option with delta, D1 is -0.0552 but after referring to distribution table, isn’t it supposed to be subtracted frm 0.5 since it is a negative figure?
Could you also explain what formula has the examiner used for calculating the delta hedge??
And I can’t seem to get 0.0239 frm the answer. Could u pls explain how to get it??Thank you!!
Hey – certainly D1 is -0.055
However you are told to calculate N(-D1).
So – – 0.055 = + 0.055 (minus a minus number is a plus. Two minuses give a plus)
So…..you are looking in the tables for N of 0.055.
The problem is that the tables only go to two decimal places. So you can look up N of 0.05, or you can look up the N of 0.06. The examiner decided that since we we after N of 0.055 then it should be half way between the two 🙂
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