The Option Trading Website
| |||||
 Delta Hedging Principles
Issued on February 08 2010 par Strategies-options.com
Delta hedging is a way to cover asset move exposure of a portfolio.
We saw that delta ∆ is a number that makes possible to grasp how would react a portfolio for a small variation of the underlying asset. It can be seen as the 'spot equivalent' exposure for a short period of a portfolio.
   Options are sensible to the spot, and delta shows up that sensitivity. I - Delta and replication Imagine that one gets the true future volatility of an asset and the true future interest rates for a given period. As far as there is a 'spot' component embedded in an option value, it may be possible to 'replicate' an option value at every moment, for a small period, provided volatility and interest rate are right. This means that if an option has a delta of 0.68, one is able to replicate 100 calls by buying 0.68 * 100 =68 shares on the market. Conversely, 400 shares XYZ can be replicated by buying 800 calls with delta at 50%. II - Advantage of the replication Replicating an option means being able to match its risk, hence to be able to make a market on that product. It improves markets and options liquidity. Summary : a first approximation Option Price Variation = ∆ * Spot Variation Delta hedging is a process that is not perfect. It leads to adjust the position and that could be costly. In order to avoid too high costs, it's sometimes needed to gamma hedge. Next : Gamma Hedging : A First Attempt Previous : Volatility Arbitrage Hedging : Principles Delta Hedging Principles Gamma Hedging Principles Vega Hedging Principles Hedging : A First Attempt Delta Hedging : A First Attempt Gamma Hedging : A First Attempt Hedging Delta Hedging Related Pdf : - Delta Hedging with the Smile - Delta Hedge - Delta Hedging Strategies-options.com |
Other articles
- Pricing Models -
Black & Scholes : Rhô ρ
Rho, like vega, doesn't exist in the Black & Scholes Model.
- Currency Options Trading Strategies -
Forex Options Strategy - EUR / USD - OTM Butterfly Spread DEC11 ( 6th Update)
A bumpy way on EUR / USD leads our adjusted Butterfly spread options on the profit side.
- Options 101 -
The Greeks : A first Attempt
Parameters like strike, dividend, interest rate and volatility and variables like time and asset provide different impacts on option value.
- Pricing Models -
Models : Models are needed for derivatives pricing
"Because the difference between six and five can be very damned important " (Insp. Harry Callahan/ Dirty Harry)
|
Strategies-Options.com - © 2009 - 2012 Tous Droits réservés
|
|
|
|
|
|
|
|
| www.strategies-options.com est un site d'éducation et de formation sur les marchés dérivés, en particulier les options, les options binaires, les warrants, les turbo warrants et les certificats.
Même si nous faisons notre maximum pour produire du contenu de qualité, nous vous remercions de nous contacter si vous remarquiez une erreur afin que nous puissions la corriger le plus rapidement possible. Les stratégies présentées ne sont en aucun cas des conseils en investissements, mais elles servent à illustrer notre propos dans un but strictement éducatif. Elles sont basées sur notre expérience de ces marchés. Vous êtes responsables de l'utilisation de ces stratégies dans l''éventualité où vous souhaiteriez les reproduire. Il reste strictement interdit de diffuser, reproduire ou publier de quelque manière que ce soit tout ou partie du contenu du site www.strategies-options.com, sous quelque forme rédactionnelle, graphique ou d'image, que ce soit, sans notre consentement. |
 |