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

question 11

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:

Posterior Side

The back or rear part of the body or a structure, opposite to the anterior or front.

Adductor Magnus

A large muscle in the thigh that functions to adduct and medially rotate the thigh, playing a key role in stabilizing walking and standing.

Biceps Femoris

A muscle in the thigh part of the hamstring group, involved in knee flexion and hip extension.

Rectus Femoris

A muscle in the quadriceps group that extends the leg at the knee and assists in hip flexion.