Delta Hedging 14.6 This involves maintaining a delta neutral portfolio The delta of a european call on a stock paying dividends at rate q is n(d de-q4 The delta of a european put is eq[N(d1)-1] Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 14.6 Delta Hedging • This involves maintaining a delta neutral portfolio • The delta of a European call on a stock paying dividends at rate q is N (d 1 )e – qT • The delta of a European put is e – qT [N (d 1 ) – 1]
14.7 Delta Hedging continued The hedge position must be frequently rebalanced Delta hedging a written option involves a buy high, sell low' trading rule See Tables 14.2(page 307) and 14.3 (page 308 )for examples of delta hedging Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 14.7 Delta Hedging continued • The hedge position must be frequently rebalanced • Delta hedging a written option involves a “buy high, sell low” trading rule • See Tables 14.2 (page 307) and 14.3 (page 308) for examples of delta hedging
14.8 Using Futures for Delta Hedging The delta of a futures contract is elra)r times the delta of a spot contract The position required in futures for delta hedging is therefore e-(r-q) times the position required in the corresponding spot contract Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 14.8 Using Futures for Delta Hedging • The delta of a futures contract is e (r-q)T times the delta of a spot contract • The position required in futures for delta hedging is therefore e -(r-q)T times the position required in the corresponding spot contract