Delta hedge

This topic has 3 replies, 4 voices, and was last updated 9 years ago by John Moffat.

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December 2, 2016 at 4:35 pm #353235
trendline
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In calculating for the number of put options to buy (rather than call options) do we use N(-d1) instead of N(d1)?
December 4, 2016 at 2:31 pm #353724
mihail439
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I think you’re confusing real options with the derivatives (transaction options).
We use BSOP model to calculated the value of real option, and it doesn’t have anything with the contracts. If you wanna calculate the number of contracts, you’ll need to identify (a) what is the amount you need to buy or sell and (b) what is the value of the contract on the derivatives market.
December 4, 2016 at 6:31 pm #353788
palmy
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@trendline said:
In calculating for the number of put options to buy (rather than call options) do we use N(-d1) instead of N(d1)?

Yes, I think that’s correct. In the question 12/10 Marengo the delta hedge for a put option is applied exactly in that way.
December 10, 2016 at 3:06 pm #363106
John Moffat
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The questions tell you to use N(-d1) when a value of a put option is required.

And you certainly would not get only 1 mark out of 10 – you would get far more than that!!!
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