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LOS g: Evaluate the effectiveness of a standard dynamic delta hedge strategy when hedging a foreign currency position. ffice ffice" />
Q1. Phil Johnson, CFA, is a portfolio manager in the ffice:smarttags" />United States and has implemented a delta hedge strategy using put contracts on his ?2,000,000 security portfolio. The delta is -0.667, and Johnson used this value in composing his delta hedge using put contracts. The value of the pound increases from $2.00/? to $2.10/?. If the delta hedge works perfectly, then the change in the value of each put on each British pound will be closest to a/an:
A) increase of $0.07.
B) decrease of $0.03.
C) decrease of $0.07.
Correct answer is C)
In dollar terms, the change in the exchange rate causes the value of the portfolio to increase by 5% or $200,000. Johnson would have purchased puts on ?2,000,000. If the hedge is working perfectly, the put on each British pound would decline by approximatly $0.067, so $0.07 is the closest answer.
Delta = Change in option premium / Change in exchange rate
So, delta × change in exchange rate = change in option premium
-0.667 × $0.10 = -$0.07
Q2. Phil Johnson, CFA, is a portfolio manager in the United States and has been using a delta hedge strategy using $/ | 
发表于 2009-4-8 09:51
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