Options delta Hedge

This topic has 3 replies, 2 voices, and was last updated 8 years ago by John Moffat.

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January 1, 2018 at 4:39 am #426912
richardscully
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Dear Sir

I refer to to paper of Marengo on BPP Number 23 where it requests the number of put option contracts to hedge for Arion
I cannot understand why they made a N(-d1) which changed the number on the table from a negative to a positive. Of course I understand how they did it, but by doing so they came up with a different number of 382 contracts instead of 416.
January 1, 2018 at 9:16 am #426922
John Moffat
Keymaster
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It is the delta of a put option, and although I do not have the BPP kit with me because I am away from home, the original exam question (and I assume the BPP copy) specifically writes after the part (a) of the requirements to assume that the delta of a put option is
N(-d1)
January 1, 2018 at 11:35 am #426929
richardscully
Participant
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Is that the rule…if it is the delta of a put option it is -d1? a call option is d1 and put -d1
January 2, 2018 at 6:52 am #426984
John Moffat
Keymaster
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For the exam, yes, but you don’t need to learn it. When it has been asked then the examiner has always told you the rule in the question.
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