Delta Q

Give me 3 complicating issues with delta … GO!

Delta: changing over time, change if the stock price change; ?

delta estimated with black scholes is different than actual delta


I guess

  1. Delta changing even if stock price doesn’t change

  2. Delta requires dynamic rebalancing

  3. Delta holds good only for small changes in price

Delta changes over time and due to change in price of underlying. Considering that both can happen (time will obviously pass) change in underlying price has greater impact on delta. Delta of at the money options (call) near expiration will quickly move to 1 if it finishes in the money and 0 if out of money.

Answer, please.

  1. delta is only approximation, not a perfect hedge

  2. delta changes with change in price of underlying and with time

  3. delta hedging involves rounding, lading to small imperfections