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Hi,This might be a bit basic,, But your feedback would be helpful !!I am trying to understand delta hedging,, Most of the papers , books that I have see so far , follow require the following calculation,Vt = (+/-) Vc_t + Vb_t + Vs_twhere Vt is the portfolio value ate time t, Vb is the amount in Bonds or risk free rate , Vs is the amount in stocks, Vc is the CURRENT call value...Hedging error: e_t = delta_t-1 * S_t - C_t _exp(-rt) *Vb_tI have no problem with the delta hedging,, my question is ,, If I buy or Sell the European option ,, to calculate my hedging error I would need to know the current option price,, Looking trough my historical data ,, This is not always the case ,, So How do I determine the actual price ? Would it be , Call = exp(-rt)Max(S_t-K,0) ??? as I would now S_t ,r and K would the strike price that I bought the option !!!!Thank you for your help !!!

Call = exp(-rt)Max(S_t-K,0)You can't just use the value of the call (payoff) at its expiration on then discount it. Do you think a call that finished out the money was worthless from the beginning? The relevant data is the expected payoff at time 0 (when the call was issued).I guess you could compute it with B&S formula using implied vol at t0, as well as the interest rate at the time. To be sure that this is the actual price, you just need to find which interest rate is used in inverting B&S to determine IV in the data that you have.HTH

Thank you for your reply,,I will give that a try... definitely,, That was the payoff at expiry !!! ( was a careless mistake !!!!)Thanks again