# Tag Info

7

This is in fact a tricky matter. As you say one way is to calculate delta by an analytic formula, i.e. calculate the first derivative of the option pricing formula you are using with respect to the underlying's spot price. The second way is to do it numerically, i.e. change the spot price by a small value $dS$, calculate the value of the option and then ...

6

I assume you mean that the hedge error should go to zero when the time-step size goes to zero. This is the case! I have a BS delta hedge simulator here: http://www.christian-fries.de/finmath/applets/HedgeSimulator.html and the source code here: http://www.finmath.net/java/ which shows that the delta hedge converges. However, in order to have that result, ...

2

It may be the case with certain exotics that greeks are derived analytically through approximations. In that case at certain boundaries you may get different results from such approximation over the numerical approach. Why do you not approach the numerical case similarly than most banks and hedge funds when they "shock" their options books: Simply shift your ...

2

Assuming you already have a way to obtain hedge ratios and the like, your best available choice is probably blotter (used to be just quantstrat). You will find that it isn't necessarily oriented toward options. Generally for options backtesting, pros end up making their own or buying commercial software. There are tons of commercial providers, but I ...

2

"does the underlying usually see increased trading?" Not necessarily. Most market makers do not re-hedge much in the underlying. In many markets the delta is exchanged (off-exchange) alongside the options trade at initiation, making both parties delta neutral at the outset. Re-hedges in large vol books are generally accomplished through other options and ...

2

I think you incorrectly calculate portfolio values. For me the easiest way to keep track of portfolio positions and avg price is to separately calculate the sum of volume traded on the long and short side and to also calculate an average price separately for buys and sells. You obviously must update the avg price and size of the particular side ...

1

Lets give it a rough go then. Two assumptions. (1) We disregard repo (to lend the stock you may want to short) or financing on your hedged position. And (2) We assume no trading of the gamma on the option. Then I would assume the break-even is equal to the expiry should be equal to... (CALL) paidPremium/(1-hedgedDelta) + callStrike (PUT) putStrike - ...

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