I wanted to confirm the inherent reasoning behind 0 delta on a weighted equity basket option. For instance, if we have a basket option with a forward starting initial fixing date, we can expect the basket and underlying deltas to be 0.

Is the initial fixing on a forward date using the Black-Scholes or Local Volatility model to price not accounted for to produce deltas? Or what is the better logical explanation?

Thank you for your help

  • $\begingroup$ I do not think the delta is zero given that the future fixing still depends on the current spot. $\endgroup$
    – Gordon
    Nov 12 '19 at 14:11
  • $\begingroup$ Thanks Gordon. Would you know of any pricing model or documentation/formula for these that calculates Greeks from the current spot? Or is this equivalent to the BS delta calcs? Thank you $\endgroup$
    – Kim
    Nov 12 '19 at 14:23
  • $\begingroup$ That will depend on your pricing formula -- how the spot is involved. You may consider a simple forward starting option under the BS set-up. $\endgroup$
    – Gordon
    Nov 12 '19 at 15:49

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