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Pilot Q2 (b)(ii)Calculation of the number of contracts required to eliminate the exchange rate risk, I don’t agree with the answer.
The answer is based on delta hedge: 150m/[N(d1)*0.1m]=2,785
Why not 150m/0.1m=1,500? Sydonics is to buy EUR 150m in 3 month, so it can buy 1500 call option contract to hedge the risk that EUR appreciates.
Delta hedge is used to create a delta zero portfolie, not apply to this scenario.
Can anyone explain?
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