Delta hedge

abhishek.chaudhari
Posts: 8
Joined: Tue Jul 17, 2012 11:13 am

Delta hedge

Postby abhishek.chaudhari » Tue Jul 17, 2012 11:29 am

hedger have no directionnal exposure anymore. As it is delta hedging (first partial derivative), could we say that hedger is immunize against SMALL movements in price but remains expose for LARGE movements. So he has "partial" directionnal exposure ?

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suresh.wadhwani2009
Finance Junkie
Posts: 99
Joined: Sat Apr 07, 2012 10:24 am

Re: Delta hedge

Postby suresh.wadhwani2009 » Mon Sep 03, 2012 12:18 pm

Dear Abhishek,

You are right.

Delta Hedging is teh process of setting or keeping the delta of a portfolio zero by typically buying option and correspondingly sell underlying security so that positive and negative delta offset each other (other ways also to do the same).

If position is delta neutral, change in option value, for a small change in the underlying will be zero. That is, its overall value will not change for small changes in the price of its underlying instrument.


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