A Put Option Can Be Replicated by Holding a Position $P = B + \Delta S$

question 24

Multiple Choice

A put option can be replicated by holding a position in stock and bonds,i.e. , $P = B + \Delta S$ where $\Delta$ is the delta of the put option.Comparing the replication formula to the Black-Scholes formula,and assuming no dividends,what can you say about the delta of the option?

• A)The delta is equal to the probability that the option will end up in the money.
• B)The delta is equal to \(N \left( d _ { 1 } \right)\)
• )
• C)The delta is equal to \(N \left( - d _ { 1 } \right)\)
• )
• D)The delta is the long position in stock needed to replicate the option.

---

Definitions:

Common Shares

A type of equity security that represents ownership in a corporation, entitling holders to vote at shareholders' meetings and to dividends.

Net Increase

refers to the change in a financial statement item that results in a higher amount compared to a previous period.

Cash Dividends

Payments made by a company out of its profits to its shareholders, typically in cash.