Chapter 05 · Section 5.1

Delta Hedging

1. 1Hedging a Long Position→
2. 2Fixed Hedge→
3. 3Delta Hedge→
4. 4Delta Factor - At-The-Money-Put→
5. 5Change in the Delta Factor→
6. 6Fixed Hedge Formula→
7. 7Hedging Options→
8. 8Comparing Delta Hedging to Fixed Hedging→
9. 9Fixed Hedge→
10. 10Delta Hedge→
11. 11Fixed Hedge→
12. 12Delta Hedge→
13. 13The Final table→

Whereas fixed hedging limits the loss potential of the hedge to the premium, the aim of delta hedging is to establish a hedge, which at every moment and price of the underlying generates a loss as close to zero as possible. However, delta hedging is based on the assumption that the delta factor behaves as expected, which is not always the case.