经济金融一月特训班11衍生品9 10下午lecture 10_greeks final.pptxVIP

Lecture 10 Derivatives and Fixed IncomeThe Greek Letters;Contents;2;3;4;Ignoring discounting, the cost of writing and hedging the option appears to be max(S0?K, 0). What are we overlooking?;2. Stop-Loss Strategy;2. Stop-Loss Strategy;2. Stop-Loss Strategy;The Black-Scholes-Merton model has five inputs: underlying asset price, volatility, risk-free rate, time to expiration, and strike price. The relationship between each input and the European option price is captured by a sensitivity factor called the option Greeks. ;3. Greeks Summary;6;The call delta increases from 0 to 1 as stock price increases. ?When the call option is deep out-of-the-money, the call delta is close to zero. The option price changes a very small amount for a given change in the stock price. ?When the call option is deep in-the-money, the call delta is close to one. The option price changes almost one dollar for a one-dollar change in the stock price. The put delta increases from ?1 to 0 as stock price increases. ?When the put option is deep in-the-money, the put delta is close to ?1. ?When the put option is deep out-of-the-money, the put delta is close to zero. When, t approaches maturity, a in-the-money call’s delta is close to 1,while a out-of-the-money call’s delta is close to 0. ;7;4. Delta - Hedge;4. Delta - Hedge;4. Delta - Hedge;8;4. Delta;4. Delta;4. Delta - Hedge;Week;Week; In Scenario 1 and 2, the costs of hedging the option, when discounted to the beginning of the period, are close to but not exactly the same as the Black–Scholes–Merton price of $240,000. If the hedging worked perfectly, the cost of hedging would, after discounting, be exactly equal to the Black–Scholes–Merton price for every simulated stock price path. The reason for the variation in the cost of hedging is that the hedge is rebalanced only once a week. As rebalancing takes place more frequently, the variation in the cost of hedging is reduced. Of course, the examples are idealized in that they assume t