13.1 TThe greek letters Chapter 13 Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University 13.1 The Greek Letters Chapter 13
13.2 Example A FI has SOLD for $300,000 a European call on 100,000 shares of a non-dividend paying stock So=49X=50 5%=20% u =13% T =20 Weeks The Black-Scholes value of the option is $240,000 How does the fi hedge its risk? Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University 13.2 Example • A FI has SOLD for $300,000 a European call on 100,000 shares of a non-dividend paying stock: S0 = 49 X = 50 r = 5% = 20% = 13% T = 20 weeks • The Black-Scholes value of the option is $240,000 • How does the FI hedge its risk?
13.3 Naked covered positions ° Naked position(裸期权头寸策略) Take No action Covered position(抵补期权头寸策略) Buy 100,000 shares today Both strategies leave the Fl exposed to significant risk Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University 13.3 Naked & Covered Positions • Naked position (裸期权头寸策略) Take NO action • Covered position(抵补期权头寸策略) Buy 100,000 shares today Both strategies leave the FI exposed to significant risk
13.4 Stop-LosS Strategy This involves Fully covering the option as soon as it moves in-the-money Staying naked the rest of the time This deceptively simple hedging strategy does not work well !! Transactions costs, discontinuity of prices, and the bid-ask bounce kills it Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University 13.4 Stop-Loss Strategy This involves – Fully covering the option as soon as it moves in-the-money – Staying naked the rest of the time • This deceptively simple hedging strategy does NOT work well !!! • Transactions costs, discontinuity of prices, and the bid-ask bounce kills it
13.5 Delt Delta(A)is the rate of change of the option price with respect f to the underlying △ Figure 13.2(p. 311) Option Price B ope A Stock Price Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University 13.5 Delta • Delta () is the rate of change of the option price with respect to the underlying • Figure 13.2 (p. 311) = f S Option Price A B Stock Price Slope = •