# Questions tagged [delta-hedging]

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### Sticky strike sticky delta implementation

I'm a clear on the differences between the two assumptions but a bit confused on the practical implementation. 1) The aim of choosing one of the two assumptions is to take into account the co-dynamic ...
74 views

### How do you price an option on multiple things>

Suppose, for simplicity, I want to cover the U.S. stock market by buying ETFs for the Russell 1000 and Russell 2000. But I want to overweight small cap, so the Russell 3000 won't do. Also, let's ...
44 views

### Hedging option delta

Let's say I am long 1000 50 delta call options. I need to hedge my deltas now. There can be infinite ways to do this. How should I think about proceeding wit this? My first thought was, if the ...
26 views

### Hedged portfolio dynamics under T-forward measure

I'm looking to find the hedging PDE for a multi-currency derivative $u(F_d, F_f, X,t, T)$ under the T-forward measure, using the delta-hedging argument (F - forward rate, X - forward FX rate). ...
61 views

### Delta Hedging Example

I was reading Dynamic Hedging by N. Taleb and in the chapter dedicated to the delta, there is this example of a trader position in options (one-month European call, flat yield curve, forward is ...
112 views

Are all FX trades ( RR, BF, ATM)quoted in implied vol term delta neutral trades? If trades are not delta neutral at the initiation does that mean it is speculative trading? Why/ why not?
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Are all trades quoted in implied vol terms delta neutral trades? If trades are not delta neutral at the initiation does that mean it is speculative trading? Why/ why not?
61 views

### European Call option replication

An asset $S_t$ is evolving according to the Black-Scholes model. We want to replicate a call option on this asset by holding Delta units of the asset at every time. I use a Monte Carlo algorithm to ...
84 views

### Delta hedging: theoretical value vs actual price

One way to derive the Black-Scholes PDE is via the Delta-hedging argument: Suppose that $V_t = V(t, S_t)$, for some function $V: [0,T] \times \mathbb{R} \to \mathbb{R}$. We construct a portfolio by ...
47 views

### Simple 3 way delta hedge

Consider 3 futures contracts: A BTC/ETH, settled in BTC B USD/ETH, settled in ETH C USD/BTC, settled in BTC As the markets aren't efficient, sometimes these ...
63 views

### Optimal Hedging of Options - asymmetry between long and short vol positions

Going over Zakamouline's Approximation method for optimal delta hedging of options, it is claimed that the result remains valid for both buying options (long vol positions) or selling options (short ...
134 views

61 views

### Effect of mean reverting Volatality in Black and Scholes? [closed]

Can someone please elaborate what would be the effect of a mean reverting volatility (instead of a constant volatility) in pricing options using BS ? Also how would the greeks vary?
142 views

### How is the performance measure computed here?

The image is from John C Hull Textbook titled Options, Futures and Other Derivatives ( page 407 - Ninth Edition). The table above was obtained after computing the delta of stock price, shares ...
543 views

### Hedging with machine learning

I’ve been thinking about an interesting problem lately: Suppose I have a position in an exotic derivative. How can I automate the hedging process? Traditionally, one build a pricing model and ...
161 views

### How is FX cross rates options are priced?

Say I have market for EUR/USD and also USD/CAD, how would EUR/CAD would be priced and hedged in practice? What are good papers/book chapters to read on that? (Assuming basic knowledge already on ...
280 views

### Expected value of delta-hedged portfolio

Consider portfolio in black-scholes world $\Pi = \Delta S - V$, where $S$ is the stock price and V is the price of the option. I have read that if we set $\Delta = \frac{\partial V}{\partial S}$ ...
227 views

### Option order imbalance

Currently studying the paper: HU, Jianfeng. Does Option Trading Convey Stock Price Information?. (2014). Journal of Financial Economics. 111, (3), 625-645. Research Collection Lee Kong Chian School ...
130 views

### Can prediction of realized volatility for next day improve delta hedging (gamma scalping)?

Im quite confused. As I understand from standard delta PNL of option + underlying position, pnl is equals to difference between realized and implied vol weighted by gamma. However, as I understood, ...
242 views

### Heging against stochastic interest rate

I am working on an Index and I am trying to price Call options on it. I work with the 3 Months LIBOR as Cash. I use the following Black-Scholes formula C_{t} = S_{t}e^{-q_{t}(T-t)}\mbox{N}[d_{1}(t)]...
126 views

### Why are vanilla OTC options are quoted in delta and vol?

Why do we quote options in delta bid-ask & volatility bid-ask & why not it is quoted in terms of option premium?
57 views

### duration hedging of illiquid bonds

Let's say that I have a totally illiquid 30Y bond that I want to hedge with short-dated bonds and that the market is liquid up to 10Y bonds. After 20 years, my 30Y bond will become a 10Y bond so I'll ...
100 views

### Using BS Delta to hedge in a LV Model

Why do some people use a Black Scholes Delta instead of the delta given by the Local Volatility model?
82 views

### Delta hedge a long option using a short option [closed]

If I long a call option of 1 mio USD/SGD for example, I understand that at strike price (ATM), delta is approximately +0.5. To approximately hedge this delta, I also understand we can short 0.5 mio ...
670 views

### How does a Delta Hedged portfolio yield the Risk-free?

Here I'm considering the simple case of a dealer writing call options on a stock and hedging the short position with a "textbook" Delta Hedge, i.e. goes long on $N_c \times Delta$ stocks (where $N_c$ ...
245 views

### Difference in exposure between delta hedged options, ATM straddles and delta hedged straddles

What is the difference in exposures between delta hedged options, ATM straddles and delta hedged straddles. They all seem to provide the same thing, which is exposure to volatility. What are the ...