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Marengo 12/10

Former userFormer user10y ago
Hi John, for part a) d1 is negative so shouldn't Nd1 be 0.5 minus not plus...i thought it was a mistake by Bpp and the examiner had plus as well. why is this? Thank you
John MoffatJohn MoffatAdmin10y ago#1
The question tells you to assume the delta is N(-d1) d1 = -0.06 So - d1 = - - 0.06 = + 0.6 (two minus's make a plus)
Former userFormer user10y ago#2
Oh ok Thank you!! 1) regularly do we determine a put delta hedge the same way as a call delta hedge by determining d1 and Nd1? 2) With a call delta Hedge we sell options now and buy latter to make a profit to compensate for the drop in share price.........so for a Put delta hedge do we do the same? sell options now and buy back latter?
John MoffatJohn MoffatAdmin10y ago#3
1. Not regularly, but when it is required the examiner tells you in the same way as in this question. 2. Yes (although as I explain in the lecture, in practice it is really the option dealer who is buying or selling shares in order to hedge his/her risk on the options. However the examiner doesn't seem bothered about this, so don't worry about it :-) )
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