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IAI Actuarial Core Principles · Economic Modelling · Stochastic models for security prices

A non-dividend-paying share trades at Rs 100. A European call with strike Rs 100 and one year to expiry is priced under Black-Scholes with a continuously compounded risk-free rate of 5% and N(d1)=0.6368. Using the same inputs, which is the delta of the corresponding European put?

The put delta is -0.3632. Put-call parity implies the put delta equals the call delta minus one, so 0.6368 - 1 = -0.3632. It is negative because a put's value falls when the underlying share price rises.

  1. A0.6368
  2. B0.3632
  3. C-0.3632Correct
  4. D-0.6368
  5. 0.0500

Explanation

Put-call parity gives delta_put = delta_call - 1 = 0.6368 - 1 = -0.3632. Option 0.3632 has the wrong sign, since a put loses value when the share rises. Option -0.6368 wrongly negates the call delta.

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