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forward delta
how to calculate the forward delta of vanilla option??and for a structure which combined from a strip of vanilla option....for example...buy eur c usd p k=1.3000 with every monthly fixing and delivery for 12 monthscan this structure forward hedge with a EURUSD 6 mths forward and how to calculate the forward delta for that?
forward delta
forward delta is discounted value of N(d1)..or exp(-r_usd * time) * N(d1) and for sum of option strips it would besummation of the 12 strip's individual forward deltas. it can't be hedged with 6mths forward, the options expiringbefore 6mth wud not be hedged.. though one can hedge 6mth forward delta with 1mth forward. but wud need toupdate the hedge or roll at 1mth end.. hope that helps.
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- johnself11
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forward delta
...and be careful of the vol assumptions on forward option.... lots of blood on the street has been spilled by incorrect forward vol assumptons....
Last edited by johnself11 on August 27th, 2006, 10:00 pm, edited 1 time in total.
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- BobJefferson
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forward delta
I agree with your concern about vols of forward options but I think the other members are talking about hedging vanilla options with futures or forwards (maybe because most of the time they´re more liquid than spot). Hence, a forward delta must be calculated in order to correctly hedge this exposure. The delta would be used for hedging with spot. I remember there´s a discussion in Dynamic Hedging-Taleb about forward delta.Regards