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.

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Definitions:

Chromosomes

Structures found within cells that contain DNA and proteins, responsible for carrying genetic information.

X-linked Color-blindness

A genetic condition affecting the ability to see colors correctly, passed down through genes located on the X chromosome.

Colorblind

A condition where a person is unable to distinguish certain colors, typically due to the absence or malfunction of certain color-detecting cells in the eye.

Probability

A measure of the likelihood that an event will occur, often quantified as a number between 0 and 1.