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.

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