The Option Trading Website
| |||||
 Delta Hedging : A first Attempt
Issued on April 10 2010 par Strategies-options.com
Option Price moves with the underlying. To hedge this risk, it's necessary to find a way in order to erase its correlation with that one.
Hedging, unless stop trading, means to find a correlation relationship between what we have in our portfolio and other securities or financial products in order to build a global portfolio with a much less volatil P&L if things have to go on the bad side.
I - Option Delta : As a Correlation between Underlying and Option We have seen that it's possible to approximate option variations using a first order Taylor expansion. For a small period, it leads to : dV ≈ Δ . dS dV is the option variation Δ is the correlation coefficient between option and underlying, option delta. dS a small spot variation. What we need is a global variation almost nil, a global delta that is worth 0. Hence, hedging a portfolio made of one long option with a delta Δ is using a portfolio with a delta Δ' = - Δ . II - Different Ways in order to Delta Hedge Several instruments exhibit a delta. a - Hard Delta Instrument Hard Delta is a delta that correspond to a ( almost ) linear exposition. This is the case with futures, formard, spot...This delta remains steady. b - Soft Delta Instrument It's broadly the case with options which have a non linear exposition to the underlying. Soft Delta is a 'moving delta'. Next : Delta Hedging Previous :Delta Hedging Principles 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 - Theory and Application - Optimal Process Approximation: Application to Delta Hedging and Technical Analysis - Delta Hedging with Black-Scholes Model Strategies-options.com |
Other articles
- Basic Strategies -
The call spread : A first attempt
Long call spread is a simple strategy which combines the purchase and the sale of two calls.
- Advisory -
Special Options Situations
Vous êtes confronté ponctuellement à une situation complexe de gestion, de pricing, de risk management et vous souhaitez profiter de l'expérience d'un professionnel: gagnez du temps et donc de l'argent.
- Other Derivatives -
Binary-Vanilla relationships
Binary options can be expressed with vanilla ones.
- Deferred Webinars -
Don't Trade Options Blind - Know Your Implied Volatility
Don't Trade Options Blind - Know Your Implied Volatility
- Pricing Models -
Binomial Model : the tree
Binomial model can be drawn as a tree to get some insight.
|
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. |
 |