# Tag Info

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### Delta-Hedging Exotic Options

Consider reading Lorenzo Bergomi's excellent book -- or at least the first chapter available here for download --, it will help you clarify things. Some remarks as to your original question: It is ...

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### Deriving Delta Hedge error in the B-S setup (part 2)

The paper could be clearer indeed. It is a slightly confusing topic, but the important step here is to understand the consequence of the derivative $C$ in the portfolio being priced at the assumed ...

### Options Delta Meaning of Term

It is true that when FX options are traded, the delta is often traded as well. That is a practice specific to the FX option market. It is called an "exchange of delta". You can undo it by selling the ...

### Gamma PnL Formula and Break-Even volatility

Good question! The answer to this is no. Let us work through a simple example to see why. Assume that the Gamma is $10$ and that the break-even move is $1$. For simplicity, also assume that, these are ...

### Why does volatility increase the expense of delta-hedging?

The key here is to observe that the volatility at the time the option is written is not exactly equal to the volatility that the markets actually experience during the option's lifetime. The seller ...

### Optimal delta-hedging frequency when gamma scalping

The model I quite like as a base-case/rule of thumb is the Hoggard, Whalley, and Wilmott (1994) model. Assuming GBM - the number of shares, $N$, per interval is: $$N = Δ(S+dS,t+dt)- Δ(S,t)≈ Γ*dS$$ ...

### Delta of binary option

Delta of a digital (or binary) option is like the normal distribution probability function , approaching 0 at far OTM / ITM conditions and representing a very high peak at ATM. The peak at ATM ...

### What is the effect of increasing volume depth to stock volatility?

Answers to your 3 questions: Empirically, there is no effect. I understand that this is not logical but it is reality. Adding thickness to an order book does not necessarily make it harder or easier ...
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### Basic practical question about Delta hedging

As has been remarked in the comments already, the standard deviation of your hedging error should approach zero as your re-hedging frequency (the number of time steps) increases. Here is a sample ...
We denote by $C(S_0, K)$ the price for a call option with payoff $(S_T-K)^+$ at the option maturity $T.$ Here $S_0=100$ is the spot stock price. Generally, \begin{align*} C(S_0, K) \ne (S_0-K)^+. \...