- This topic has 3 replies, 2 voices, and was last updated 6 years ago by
John Moffat.
John Moffat.-
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stafano
- Topics: 43
- Replies: 65
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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
John Moffat
- Topics: 57
- Replies: 50537
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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)
stafano
- Topics: 43
- Replies: 65
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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?
John Moffat
- Topics: 57
- Replies: 50537
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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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