Delta hedge ratio
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| Language pair: | English |
| Definition / notes: | Campbell R. Harvey's Hypertextual Finance Glossary • Delta Also called the hedge ratio, the ratio of the change in price of a call option to the change in price of the underlying stock. Applies to derivative products. Measure of the relationship between an option price and the underlying futures contract or stock price. For a call option, a delta of 0.50 means a half-point rise in premium for every dollar that the stock goes up. As options near expiration, in-the-money call option contracts approach a delta of 1.0, while in the money put options approach a delta of -1. See: hedge ratio, neutral hedge. • Hedge ratio The ratio of volatility of the portfolio to be hedged and the return of the volatility of the hedging instrument. For convertibles, percentage of a convertible bond representing the number of underlying common shares sold against the shares into which bonds are convertible. If a preferred is convertible into 2.0 common shares, a 75% hedge ratio would be short (long) 1500 common for every 1000 preferred long (short). For options, ratio between the change in an option's theoretical value and the change in price of the underlyingstock at a given point in time. |
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