# Questions tagged [delta-hedging]

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### Delta-Hedging Exotic Options

I have already figured out that Delta-hedging essentially turns European options into volatility products where you pay implied vol and get paid realized vol for long positions and you pay realized ...
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### What really is Gamma scalping?

How does Gamma scalping really work? It seems there is no true profit scalped. If we look at the simplest scenario, Black-Scholes option price $V(t,S)$ at time $t$ and the underlying stock price at $S$...
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### How to, from various hypotheses on the P&L, get known models (BS, Heston etc ...)

Usually models in quantitative finance are taught by giving, let's say, stochastic differential equations, initial conditions, and then pricing, under the model, various derivatives written on the ...
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### Delta of binary option

What is the Delta of an at-the-money binary option with a payout $0$ at $S(T)<100$ dollars, and payout of $1$ at $S(T)>100$ dollars, as it approaches expiry? This is from a sample interview exam....
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### How to numerically obtain delta?

The delta in option pricing, also called the hedge ratio, is expressed as the sensitivity of the option price to the underlying price change. The analytical solution for the most common option ...
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### Delta hedging frequency for plain vanilla European options under trading costs

I am looking for methods to select points in time when delta hedging plain vanilla European options under trading costs. It is easy to come up with ad hoc ideas such as Time-based: for example at ... 5k views

### Delta Hedging with fixed Implied Volatility or floating Implied Volatility?

When delta hedging an option until expiry at implied volatility, is it better to rehedge using the fixed implied volatility given by the option price upon its purchase (or sale), or to rehedge using ...
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### delta-hedging is failing

and thank you for answering me ! While I was recently testing a delta-hedging on a few products, I got a P&L result of 20% for some of them. First, I thought that the implementation was ...
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### Effect of volatility on the delta of a call option

In the book 'Dynamic Hedging', Nassim Taleb writes: ...
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### Proof of gamma profit formula

http://www.volcube.com/resources/options-articles/gamma-hedging-trading-strategies-part-i/ I would like to have proven to me the above formula, mostly because I don't quite understand it. The formula ...
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### Gamma Imbalance / Exposure

I am currently writing my thesis about the lack of volatility / changing market structure we see nowadays on the financial market. I believe an important factor in this development is the delta-...
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### How do market makers hedge VIX index options?

With equity options, many market makers hedge by buying or selling the underlying asset in correspondence with the option's delta. For example, if the market maker wrote 1 call option with a delta of ...
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### Interpertation of delta hedge error in Black Scholes

I have spent some time to prove the delta hedge error as described in this paper paper page 16-17 by Davis. The proof is discussed here Deriving Delta Hedge error in the B-S setup (part 2) (a post by ...
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What would a hedging strategy look like for a payoff $\int_0^T\log S_u\mathrm{d}u$? I have determined under Black-Scholes stock dynamics, $$\int_0^T\log S_u\mathrm{d}u=\int_0^t\log S_u\mathrm{d}u+\... 5 votes 2 answers 585 views ### Expected value of delta-hedged portfolio Consider portfolio in black-scholes world \Pi = \Delta S - V, where S is the stock price and V is the price of the option. I have read that if we set \Delta = \frac{\partial V}{\partial S}  ... 4 votes 3 answers 817 views ### Derivation of BS PDE problem using Delta hedging I've always been confused with Delta hedging. It is well-known that for a (smooth enough) function of (S,t) we have, due to Ito's lemma, that: \begin{eqnarray*} dC = \left(\frac{\partial C}{\partial ... 4 votes 2 answers 7k views ### Delta Neutral / Gamma Neutral Positions I've been trying to find out more about options positions which are both delta neutral and gamma neutral--created with some kind of calendar spread. Supposedly, such a trade will be perfectly hedged ... 4 votes 2 answers 2k views ### Why doesn't a simulated delta hedging process go to zero? I put together a simple simulation of delta hedging a set of options with an underlying and it seems that the fluctuations of the price still seem to affect the final outcome. The reason, I understand ... 4 votes 4 answers 662 views ### Confusion about Vega P/L For someone who has a delta hedged options position, the \Gamma:= \frac{\partial^2V}{\partial S^2} roughly quantifies the amount of money made or lost if$$\frac{1}{\Delta t}\frac{(\Delta S)^2}{S^2} ...
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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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### Delta Hedging with fixed Implied Volatility to get rid of vega?

I'm wondering if i should use a floating IV or a fixed IV to delta hedge my options every day. I've read this post but would like different information : Delta Hedging with fixed Implied Volatility ...
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### When does the underlying become the derivative?

Since options contracts are created by open interest in the contract, it is conceivable that the notional of the total options contracts can exceed the value of the underlying. If that happens, does ...
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### Why does volatility increase the expense of delta-hedging?

Consider someone that writes a call, and wishes to delta-hedge against it to remain delta neutral. For this to be profitable, the price they sell this option for should be greater than or equal to the ...
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### Breakeven of a delta-hedged option

Basic question to which I surprisingly did not find an answer on here. What's the best approximation to the break-even (with respect to stock price) for an option that was hedged fully at point of ...
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### Hedging - calculating option prices using implied volatility surface

To hedge a strategy is it accurate "enough" to price an option using an implied vol curve vs moneyness (strike/spot) assuming sticky delta? The moneyness can be read off the chart, its corresponding ...
336 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 ...
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### Uniqueness of the Hedging strategy

I am currently reading the book "Nonlinear Option Pricing" by Julien Guyon. In the book they defined an attainable payoff $F_T$ as a $\mathcal{F}_T$ measurable random variable for which there exists ...