You get this one?

CFA Level III
#1

A delta neutral hedge is implemented by: 1. Buying calls equal to call delta times (shares/contract size) 2. Selling calls equal to (1/call delta) times (shares/contract size) 3. Selling puts equal to (1/call delta) times (shares/contract size)

#2

2

#3

yup, agree with 2

#4

Is 2… 3 makes no sense

#5
  1. Hedge Ratio = -1/delta x (V / n)
#6
  1. Delta = Change in Put price/Change in Exchange rate 2) Change in Exchange rate * Delta = Change in Put price 3) n*Change in Exchange rate * Delta = n*Change in Put price 4) Portfolio Change due to currency change= Value of portfolio in foreign currency*Change in Exchange rate Set 4 equal to 3 5) Value of portfolio in foreign currency*Change in exchange rate= n*Change in Exchange rate * Delta Simplify Value of portfolio in foreign currency / Delta= n
#7

Foreign currency?

#8

You need to know the position you want to get Delta Neutral on. If I’m long a call, then I will sell the Delta in the stock. (ie assuming all ATM then, long 1 call, sell 50 shares) If I’m long a put, then I will buy the Delta in the stock. (ie assuming all ATM then, long 1 put, buy 50 shares) If I’m long the stock then I will buy 1/Delta in the put. (ie assuming all ATM then, long 100 shares, buy 2 puts) If I’m short the stock then I will buy 1/Delta in the call. (ie assuming all ATM then, short 100 shares, buy 2 calls) You could conceivably do the hedge by selling calls for the long position and selling puts for the short position, but that depends on you view on volatility. Basically if you sell the options, you are delta neutral for the moment but long Vega. Again, need more info for that question to make any sense whatsoever because both 2 and 3 make sense.

#9

I got this far - N(s) = - (delta)(N(o)) Rearange… N(o)= -(1/delta) x N(s) Then I figured 2 or three could be right since we don’t know whether we are going long or short stock. How did you eliminate 3?

#10

“3” says 1/call delta If “3” were true, it should say 1/put delta

#11

Good spot bidder.

#12

Thanks allepourpecher. Why are you going to fishing?

#13

Research mainly for a supplimental GIPS component (as GIPS evolves). For far too long fair performance presentation standards for fish have been overlooked. “It was this big”, for example lacks a benchmark, with no stated reason, and do you think fishermen store this data? Think again buddy! Where are we without the integrity of input data?

#14

D’accord… that was very convoluted. Good luck on the exam!