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.
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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
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)
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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?
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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