Derivative Markets 2nd Edition- Robert L.Mcdonald 原版PPT课件_CH13.pptVIP

Ch13 Chapter 13 Market-Making and Delta-Hedging What Do Market Makers Do? Provide immediacy by standing ready to sell to buyers (at ask price) and to buy from sellers (at bid price) Generate inventory as needed by short-selling Profit by charging the bid-ask spread What Do Market Makers Do? (cont’d) Their position is determined by the order flow from customers In contrast, proprietary trading relies on an investment strategy to make a profit Market-Maker Risk Market makers attempt to hedge in order to avoid the risk from their arbitrary positions due to customer orders Option positions can be hedged using delta-hedging Delta-hedged positions should expect to earn risk-free return Market-Maker Risk (cont’d) Market-Maker Risk (cont’d) Delta (D) and Gamma (G) as measures of exposure Suppose D is 0.5824, when S = $40 (Table 13.1 and Figure 13.1) A $0.75 increase in stock price would be expected to increase option value by $0.4368 ($0.75 x 0.5824) The actual increase in the option’s value is higher: $0.4548 This is because D increases as stock price increases. Using the smaller D at the lower stock price understates the the actual change Similarly, using the original D overstates the the change in the option value as a response to a stock price decline Using G in addition to D improves the approximation of the option value change Delta-Hedging Market-maker sells one option, and buys D shares Delta hedging for 2 days: (daily rebalancing and mark-to-market): Day 0: Share price = $40, call price is $2.7804, and D = 0.5824 Sell call written on 100 shares for $278.04, and buy 58.24 shares. Net investment: (58.24x$40) – $278.04 = $2051.56 At 8%, overnight financing charge is $0.45 [$2051.56x(e-0.08/365-1)] Day 1: If share price = $40.5, call price is $3.0621, and D = 0.6142 Overnight profit/loss: $29.12 – $28.17 – $0.45 = $0.50 Buy 3.18 additional shares for $128.79 to rebalance Day 2: If share price = $39.25, call price is $2.3282 Overnight profit/lo