The Greek Letters EFINANCE希腊字母网络.pptVIP

* * * * * * * * * * * * * * * * * * The Greek Letters Chapter 17 * * Example A bank has sold for $300,000 a European call option on 100,000 shares of a nondividend paying stock S0 = 49, X = 50, r = 5%, s = 20%, T = 20 weeks, m = 13% The Black-Scholes value of the option is $240,000 How does the bank hedge its risk to lock in a $60,000 profit? * * Naked Covered Positions Naked position Take no action Covered position Buy 100,000 shares today Both strategies leave the bank exposed to significant risk * * Stop-Loss Strategy This involves: Buying 100,000 shares as soon as price reaches $50 Selling 100,000 shares as soon as price falls below $50 This deceptively simple hedging strategy does not work well * * Delta Delta (D) is the rate of change of the option price with respect to the underlying Option price A B Slope = D Stock price * * Delta Hedging This involves maintaining a delta neutral portfolio The delta of a European call on a stock paying dividends at rate q is N (d 1)e– qT The delta of a European put is e– qT [N (d 1) – 1] * * Delta Hedgingcontinued The hedge position must be frequently rebalanced Delta hedging a written option involves a “buy high, sell low” trading rule See Tables 17.2 (page 356) and 17.3 (page 357) for examples of delta hedging * * Using Futures for Delta Hedging The delta of a futures contract is e(r-q)T times the delta of a spot The position required in futures for delta hedging is therefore e-(r-q)T times the position required in the corresponding spot * * Theta Theta (Q) of a derivative (or portfolio of derivatives) is the rate of change of the value with respect to the passage of time See Figure 15.5 for the variation of Q with respect to the stock price for a European call * * Gamma Gamma (G) is the rate of change of delta (D) with respect to the price of the underlying asset Gamma is greatest for options that are close to the money (see Figure 17.9, page 364) * * Gamma Addresses Delta H