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Delta Hedge

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Delta Hedge

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by John Moffat.
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  • Author
    Posts
  • April 4, 2020 at 11:17 pm #566507
    anupom
    Participant
    • Topics: 5
    • Replies: 2
    • ☆

    Sir, in BPP kit question 18 Marengo, qn (a), the following has been done in the answer,

    d1= -0.06
    -d1= 0.06
    N(-d1)= 0.5+0.0239=0.5239

    I don’t understand how and why did they reverse the value of d1 and made it a positive value and added 0.5 with the cumulative value.
    According to me, it should have been like this
    d1= -0.06
    N(d1)= 0.5-0.0239=0.4761.

    April 5, 2020 at 9:07 am #566521
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54674
    • ☆☆☆☆☆

    Had you been required to use call options then you would have been correct.

    However the question specifically says to use put options and says that the delta of a put option is equivalent to N(-d1). (Exam questions will always say this if you are required to use put options).

    Given that d1 = – 0.06, then -d1 = + 0.06 and so the printed answer is correct.

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