Yes you will need more of the underlying in case of shorting a put option but I think here it is not about magnitude alone. Put delta is negative so its rise in magnitude means it reduces.
Exam Feedback November 2015 Part 2 FRM Exam Feedback
- Thread starter Nicole Seaman
- Start date
I remember one question about netting graphs? I think I chose the flat graph
Asset allocation question - chose a/ 0.45% for asset
Asset allocation question - chose a/ 0.45% for asset
Yes, decrease/decrease. If you decrease the underlying's price, call delta decreases as the call becomes less likely to be in the money. A put's delta ranges from 0 to -1, so if the underlying decreases in price, the put's delta becomes more negative (ie decreases) to reflect the increased moneyness.
If you're asking about that case study question, VaR will not be 0..
Can you recall the question? I think it's 0.86 but I can tell for sure with the question.
It's the one that increases then plateaus.
On the asset allocation question, I can't recall my answer but you can work it out with the TEV allocation formula.
Feels different to be able to discuss questions after the exam, especially after how tight CFAI is about non-disclosure.
If you're asking about that case study question, VaR will not be 0..
Can you recall the question? I think it's 0.86 but I can tell for sure with the question.
It's the one that increases then plateaus.
On the asset allocation question, I can't recall my answer but you can work it out with the TEV allocation formula.
Feels different to be able to discuss questions after the exam, especially after how tight CFAI is about non-disclosure.
Mathematically speaking under BSM, Call Delta - 1 = Put Delta. e.g. Call Delta = 1 then Put Delta = 0
So they must increase/decrease at the same time
if you can read the chapter "Delta Hedging" in "Options, Future and other derivatives" by John Hull you will see this clearly with a couple of graphs of how put and call delta behave as stock price changes. Delta is the rate of change of the derivative with respect to the change in price of the underlying,
The graphs show delta rising from 0 to 1 as stock price increases. On the other hand, delta rises from -1 and approaches, but never reaches 0 for the put.
I have 4th edition of Hull book and then graphs are on page 313, figure 13.3.
The graphs show delta rising from 0 to 1 as stock price increases. On the other hand, delta rises from -1 and approaches, but never reaches 0 for the put.
I have 4th edition of Hull book and then graphs are on page 313, figure 13.3.
the correct answer was the graph increasing... I am sure. I have put many point and calculated the net factor/ diversification.
I recall few question, anyone can help to provide your thought
1. Ops gross loss, use what value for the counts. I choose replacement cost instead of book value
2. 4 million CVA maximum, i chose position 4.. seems to be easy [might be trapped]
3. change position, transfer USD800000 to other asset, i chose VaR decreasing USD2XXXXX
4. Jeasen inequality convexity, i chose 0.86 basis point
1. Ops gross loss, use what value for the counts. I choose replacement cost instead of book value
2. 4 million CVA maximum, i chose position 4.. seems to be easy [might be trapped]
3. change position, transfer USD800000 to other asset, i chose VaR decreasing USD2XXXXX
4. Jeasen inequality convexity, i chose 0.86 basis point
It is decrease/decrease because moving closer to -1 for a put, which happens as the underlying is devalued and a call's delta moves to 0, is a DECREASE, not an increase.
Sorry
What i mean is increase or decrease at the same direction.
It is impossible to move in opposite direction
see this
Dube, the graph is correct. But please be noted that the X aixs is Moneyness but not the stock pice.
If changes as Stock price, the graph will change and you know that the Deltas will move in the same direction.
Both graphs are fine if you can interpret them properly. To illustrate:
Strike is 50 for both, the price can be either 5 or 95 for the underlying.
Price = 95
Call delta: close to 1
Put delta: close to 0
Price = 5
Call delta: Close to 0
Put delta: Close to -1
Call delta going down is coupled with put delta decreasing (0 => -1 is a decrease) as the put is increasingly in the money.
It's really not that confusing.
Strike is 50 for both, the price can be either 5 or 95 for the underlying.
Price = 95
Call delta: close to 1
Put delta: close to 0
Price = 5
Call delta: Close to 0
Put delta: Close to -1
Call delta going down is coupled with put delta decreasing (0 => -1 is a decrease) as the put is increasingly in the money.
It's really not that confusing.
Similar threads
