# Questions tagged [delta-hedging]

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### How does P&L of delta hedged option position accumulate over time?

Assume that I long ATM Call option on a stock at 20% implied volatility. This Call option will expire in 1 month. If, over this coming month, the underlying moves with 30% volatility and I delta-hedge ...
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### A bug in delta hedging, when for a certain step dS=0

Suppose we are doing a delta hedging simulation according to Black Scholes, where the initial condition are [stockPrice, strike, timeToExpire ,riskFreeRate, dividend, sigma, isCall] = [100, 100, 1, 0, ...
1 vote
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### Computation of limit

In Delta of binary option, I do not see how to prove that the limit of $\partial C_t/\partial S_t$ is equal to $+\infty$ as $t \rightarrow T$. Can someone help ?
555 views

### 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 ...
1 vote
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### Delta re-hedging with options

What are the pros and cons of delta re-hedging an option combination (straddle, strangle etc...) with options of the same underlying rather than with the underlying itself? I am having a hard time ...
491 views

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### Why/How does a hedged portfolio make profits?

This is probably a very easy question but I am new to the field and couldn't find an answer. Assuming that I am building a hedged portfolio with a long option and going short delta on the underlying. ...
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### Effect of volatility on the delta of a call option

In the book 'Dynamic Hedging', Nassim Taleb writes: ...
1 vote
1k views

### Delta and gamma neutral

A financial institution currently has a portfolio with delta of 450 and gamma of 6,000. A traded option is available with a delta of 0.6 and a gamma of 1.5. How could the portfolio be made both delta ...
258 views

### The role of Gamma in replicating a put

I am analyzing portfolio protection by replication of a put. Having my portfolio with value $V$ I could buy put giving me the payoff $P$ resulting in a call like pay-off scenario $C=V+P$. Say, I don'...
115 views

### How to manage risk on a call calendar when underlying is falling

Let us say I bough a call calendar spread. Now, at expiry of the short option, the underlying has decreased significantly, and I am approaching my max loss(i.e both the options are close to 0). In ...
1 vote
371 views

### Delta-Gamma Neutral portfolio, derivation issue

Let $C$ be an option on an underlying $S$. I want to construct a portfolio $V$ using another asset $C_0$ such that the delta and the gamma of $V$ is the same as the delta/gamma of $C$, in order to ...
1 vote
955 views

### Numerical delta of Bond Options

I'm trying to calculate the delta for bond Call options. I'm using the vasicek model which gives the following solution for a Zero-coupon bond call option: \$Z = N P(t,S) \Phi(d_1) - K P(t,T) \Phi(d_2)...
1 vote
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### Under what circumstances would one want to delta hedge a straddle

Under what circumstances would one want to delta hedge a straddle option? This link explains: ...
331 views

### How to hedge a long stock with the corresponding volatility ETF

Let us say I want to establish a market neutral position. So if I buy 50 shares of stock (SPY) and I want to delta hedge, I sell an ATM covered call. So that brings the position delta to 0. Now, I ...
1 vote
161 views

What does it mean to implement a delta-neutral strategy for straddle ? A straddle consists in buying a call and a put simultaneously, at the same date, on same underlying, with same maturity and ...
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### Why is this delta-hedging/P&L example on a variance swap call correct?

I'm looking into this article about var swaps: http://sbossu.com/docs/VarSwaps.pdf and not sure how to correctly interpret Exhibit 2.1.1. "In this example an option trader sold a 1-year call struck ...
1 vote
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### Mock/practice trading for options (delta/gamma hedging etc.)

I know there are some sites for practicing equity investing. But could you provide me with suggestions concerning options trading etc. I read Natenbergs book on Options and want to test things like ...
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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 ... 380 views

### Zakamouline Optimal Hedging of Options with Transaction Costs

I've read that the Zakamouline method suggests the best optimal hedging of options when taking transaction costs into account. I've read the article but am having difficulty understanding it well ...
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### 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 ...
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### Is it wrong to use 'real world' probabilities for option valuation?

Is it wrong to use 'real world' probabilities for option valuation, even when the market is not liquid enough to delta hedge the option? My instinct is that it is wrong, because the time value of ...
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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 ...
20k views

### 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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### backtesting options strategies in R

I would like to backtest an options strategy in R. I require the ability to delta hedge and rebalance to options in the portfolio at different frequencies (daily, monthly,etc.) What packages are the ...
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