Questions tagged [delta-hedging]
224 questions
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4 answers
Delta of binary option
What is the Delta of an at-the-money binary option with a payout $0$ at $S(T)<100$ dollars, and payout of $1$ at $S(T)>100$ dollars, as it approaches expiry?
This is from a sample interview exam. I understand that Delta essentially measures the…
user11128
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12
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3 answers
Delta hedging frequency for plain vanilla European options under trading costs
I am looking for methods to select points in time when delta hedging plain vanilla European options under trading costs.
It is easy to come up with ad hoc ideas such as
Time-based: for example at fixed time intervals.
Price-based: hedge when the…
user1157
4
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0 answers
How does P&L of delta hedged option position accumulate over time?
Assume that I long ATM Call option on a stock at 20% implied volatility. This Call option will expire in 1 month. If, over this coming month, the underlying moves with 30% volatility and I delta-hedge this option. I expect to get profit from Gamma…
Woraphon T
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where does the cost of delta hedging come from?
I am reading John Hull's book, and am a bit confused about the explanation regarding the cost of delta hedging.
Here is the background: a financial institute is selling call options with strike price $K$, and it is applying delta hedging by…
username123
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1
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Sticky strike sticky delta implementation
I'm a clear on the differences between the two assumptions but a bit confused on the practical implementation.
1) The aim of choosing one of the two assumptions is to take into account the co-dynamic between the spot and the vol when delta hedging.…
Patrick
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1 answer
Why does it make sense to delta hedge a deep OTM option given the very low delta exposure?
I am not sure if this is actually done in practice as I'm not a derivatives trader, but I can only think of reducing the cost of the OTM option as a reason for delta hedging a deep OTM option, which is likely to be pricey/expensive.
Appreciate the…
charm93
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Delta-hedging non-volatile stock
If a stock has zero vol and some positive drift $\alpha$ (in a BS-setting) and we delta hedge a long call option dynamically over a year with some positive implied volatility.... how would that work out for us?
Would the answer depend on how often…
Man
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Delta hedging Question
What is the delta of a short position in 1,000 European call options on silver futures? The options mature in eight months, and the futures contract underlying the option matures in nine months. The current nine-month futures price is $8 per ounce,…
wang
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Question regarding delta-hedging principle
A delta-hedging principle involves taking the opposite direction, i.e., short and long, to hedge against financial risk. An example is longing an option call and selling (shorting) the borrowed the delta amount of the underlying assets.
If the asset…
poglhar
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Compute Forward Variance Swap
I'm trying to compute a forward variance like this paper https://arxiv.org/pdf/2105.04073.pdf.
The paper shows that under rough stochastic volatility model assumption, options can be hedged with the underlying and variance swap.
I'm particularly…
user2843539
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Questions during reading option volatility and pricing from Sheldon Natenberg
This question comes from the book of Sheldon Natenberg's book "Option Volatility and Pricing: Advanced Trading Strategies" 2nd.
In chapter 8 "Dynamic Hedging" page 129, it says: In theory, if we ignore interest, the sum of all these small profits…
0
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1 answer
Dumb Question: Delta-Neutral fractional shares
If neutralizing delta requires an addition of a fractional number of shares, e.g. 444.12345 do we generally keep the decimals or round up to the nearest integer? I reckon rounding would no longer make it "neutral"?
Jeff Nguyen
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