The last column in Exhibit 20 Volume 5 page 426 of the CFA book shows “New Delta”. Is it calculated using BSM or using Change in option price/Change in underlying price formula ? I tried using the latter but did not get the delta shown in the column. Any help pls?
Can you post the question?
Please don’t post the question since they are copyrighted material.
Let me put this differently without violating any copyrights.
When the price of an underlying changes, say from 900 to 890, the delta estimate price of the call option will also decline. Lets say the earlier delta was 0.65 and the call price was $50, the new call price will be $50+(890-900)x0.65 = $43.50. No matter the change in the underlying or the call the delta remains the same at 0.65.
880 37.00 different
890 43.50 different
900 50.00 0.65
910 56.50 different
Will the delta change now that we have new call prices? The last column in the exhibit is “New Delta” and it is different for each of the underlying prices. Not sure how these were arrived at.
Delta is sensitivity to the underlying for small changes in price . It is an approximation .
My question is how did they calculate the “New Delta”
You can approximate the change in delta for small stock price changes using the second order measure (gamma). However, gamma also changes as the stock price moves. So, if they are giving you precise delta measures for various stock prices, they are mathematically finding those values using Black-Scholes framework, or they are making up some numbers for illustrative purposes.
Hope that answers the question…