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Marengo 12/10

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Marengo 12/10

  • This topic has 3 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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    Posts
  • May 31, 2016 at 9:56 pm #318517
    Anonymous
    Inactive
    • Topics: 43
    • Replies: 65
    • ☆☆

    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

    June 1, 2016 at 9:13 am #318577
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    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)

    June 1, 2016 at 1:30 pm #318622
    Anonymous
    Inactive
    • Topics: 43
    • Replies: 65
    • ☆☆

    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?

    June 1, 2016 at 4:17 pm #318668
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    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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