A Call Option Can Be Replicated by Holding a Position $C = \Delta S - B$

question 27

Multiple Choice

A call option can be replicated by holding a position in stock and shorting bonds,i.e. , $C = \Delta S - B$ where $\Delta$ is the delta of the call option.Comparing the replication formula to the Black-Scholes formula (assume a non-dividend-paying stock) ,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 the short position in stock needed to replicate the option.
• D)There is insufficient information to say anything about the delta.

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