Percentage Delta?

[ebb]

I noticed that you use the term Percentage Delta.

I do not see that term referenced anywhere on the FRM curriculum.

Do you reference Delta as d1 and Percentage Delta as N(d1)? Is there an optimal function in Excel 2003 to convert from N(d1) back to d1 without using goal seek?

 

[David Harper CFA FRM]

Hi bb,

The term is not in the FRM curriculum (although we are always trying to improve the exam standards so it will appear on my list of recommendations). I learned it from Carol Alexander (http://www.carolalexander.org/mra.html) and find it helpful to distinguish between "percentage delta" (or percentage Greek) and "position delta." For example, 100 short call options may have a percentage delta of 0.60, in which case the position delta (which is needed to neutralize delta) is -100 * 0.60 = -60.

Confusion ensues without distinguishing, I've found. For example, i can't count how many times candidates have read about a "negative gamma" prompting the question, but i thought gamma is always positive? The answer is that percentage gamma is always positive which implies that position gamma of short position is always negative as: -quantity * +percentage gamma = -position gamma (i.e., use negative quantity to signify short position). I hope that explains why i'd like to see it eventually included.

d1 is not delta. N(d1)*exp(-qT) is call option (percentage) delta
=NORM.S.INV (probability) is the inverse normal CDF in Excel 2010, which i use

David