Simulation of delta hedging a CALL OPTION.

Inputs in grey cells

Asset
Actual volatility
Drift
Interest rate

468.5
0.3
0.3
0.07

Strike
Expiry
Implied volatility

440
1
0.2

Timestep

0.01

Time
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.1
0.11
0.12
0.13
0.14
0.15
0.16
0.17
0.18
0.19
0.2
0.21
0.22
0.23
0.24
0.25
0.26
0.27
0.28
0.29
0.3
0.31
0.32

Asset
(Actual
vol.)
468.5
488.6081
486.4184
490.1298
479.7439
470.2699
463.9579
427.7174
416.0743
421.1161
410.5759
402.7414
391.6958
365.591
350.871
348.0387
349.8763
355.7788
362.596
366.9623
350.833
340.6526
340.7164
360.5523
360.3519
355.4869
363.9416
371.9039
367.3077
369.0207
355.4377
359.4293
363.667

Hedging volatility

d1
(Implied
vol.)
0.763807
0.974314
0.952041
0.990955
0.882212
0.779908
0.709716
0.287173
0.14017
0.199352
0.062118
-0.044414
-0.197686
-0.573362
-0.803117
-0.856665
-0.837929
-0.756086
-0.660852
-0.60342
-0.863483
-1.039647
-1.050324
-0.739819
-0.753022
-0.841698
-0.715977
-0.59948
-0.682209
-0.664728
-0.898959
-0.843648
-0.784216

d1
(Hedge
vol.)
0.763807
0.974314
0.952041
0.990955
0.882212
0.779908
0.709716
0.287173
0.14017
0.199352
0.062118
-0.044414
-0.197686
-0.573362
-0.803117
-0.856665
-0.837929
-0.756086
-0.660852
-0.60342
-0.863483
-1.039647
-1.050324
-0.739819
-0.753022
-0.841698
-0.715977
-0.59948
-0.682209
-0.664728
-0.898959
-0.843648
-0.784216

d2
(Implied
vol.)
0.563807
0.775316
0.754051
0.793978
0.686253
0.584972
0.515809
0.0943
-0.051664
0.008564
-0.127618
-0.233094
-0.385303
-0.75991
-0.98859
-1.041055
-1.021232
-0.938295
-0.841959
-0.78342
-1.042368
-1.217411
-1.22696
-0.915318
-0.927377
-1.014903
-0.888023
-0.77036
-0.851915
-0.833251
-1.066291
-1.00978
-0.94914

0.2

Option
(Implied
vol.)
71.5237
87.41118
85.24196
87.99086
79.06889
71.16845
65.94722
40.57413
33.44869
35.99535
29.86532
25.6242
20.35411
10.94162
7.137234
6.409414
6.624359
7.72074
9.175941
10.13465
6.207496
4.32919
4.21747
7.771395
7.549214
6.346132
8.018446
9.855393
8.453984
8.685821
5.547984
6.152725
6.860446

Delta
(Hedge
vol.)
0.777509
0.83505
0.829462
0.839146
0.811169
0.782277
0.76106
0.61301
0.555737
0.579006
0.524766
0.482287
0.421645
0.2832
0.210953
0.195815
0.201035
0.224799
0.254354
0.273115
0.193936
0.149252
0.146784
0.229705
0.225718
0.199978
0.237003
0.274426
0.247553
0.253112
0.184337
0.199433
0.216457

Portfolio -292.48592
-320.94155
-318.5531
-323.50634
-310.29991
-296.99658
-284.94443
-221.60901
-198.03445
-207.86068
-185.72068
-168.55568
-143.20811
-92.229308
-67.010539
-61.886727
-63.803324
-72.335206
-83.203557
-89.610096
-61.735602
-46.63514
-45.152098
-75.225429
-73.893825
-64.762012
-78.28687
-92.344924
-82.666465
-84.417662
-60.103446
-65.666775

0.33
0.34
0.35
0.36
0.37
0.38
0.39
0.4
0.41
0.42
0.43
0.44
0.45
0.46
0.47
0.48
0.49
0.5
0.51
0.52
0.53
0.54
0.55
0.56
0.57
0.58
0.59
0.6
0.61
0.62
0.63
0.64
0.65
0.66
0.67
0.68
0.69
0.7
0.71
0.72
0.73
0.74
0.75
0.76
0.77
0.78
0.79
0.8
0.81
0.82
0.83
0.84
0.85
0.86

369.2969
378.1571
394.0721
405.3394
403.0333
374.5136
369.4301
378.4332
358.8675
355.4541
365.8867
372.8754
368.0178
371.6893
368.0654
364.1347
369.2612
366.3051
380.7327
371.1573
351.5857
333.0027
332.1608
323.3994
331.8234
328.0316
339.5709
327.794
342.6685
332.5978
337.1641
328.0907
320.3303
308.8779
299.9667
294.4438
305.9813
305
300.2939
303.3172
300.4749
293.3498
302.0928
308.9642
324.8225
328.3799
324.3848
310.7545
315.9478
318.9451
301.1643
306.1511
332.8646
339.4153

-0.701704
-0.56662
-0.320883
-0.152813
-0.195631
-0.668952
-0.767666
-0.624423
-0.981113
-1.058189
-0.881814
-0.769247
-0.870684
-0.817289
-0.898434
-0.987718
-0.905774
-0.977986
-0.718408
-0.916173
-1.327525
-1.748839
-1.79374
-2.022286
-1.856454
-1.97404
-1.735027
-2.042746
-1.720666
-1.992409
-1.914466
-2.175704
-2.416484
-2.771664
-3.075981
-3.295883
-3.011538
-3.09886
-3.304571
-3.276911
-3.436299
-3.745908
-3.535404
-3.387943
-2.948351
-2.908096
-3.119908
-3.686959
-3.602947
-3.601008
-4.411951
-4.353699
-3.428094
-3.300011

-0.701704
-0.56662
-0.320883
-0.152813
-0.195631
-0.668952
-0.767666
-0.624423
-0.981113
-1.058189
-0.881814
-0.769247
-0.870684
-0.817289
-0.898434
-0.987718
-0.905774
-0.977986
-0.718408
-0.916173
-1.327525
-1.748839
-1.79374
-2.022286
-1.856454
-1.97404
-1.735027
-2.042746
-1.720666
-1.992409
-1.914466
-2.175704
-2.416484
-2.771664
-3.075981
-3.295883
-3.011538
-3.09886
-3.304571
-3.276911
-3.436299
-3.745908
-3.535404
-3.387943
-2.948351
-2.908096
-3.119908
-3.686959
-3.602947
-3.601008
-4.411951
-4.353699
-3.428094
-3.300011

-0.865411
-0.729101
-0.482129
-0.312813
-0.354376
-0.826432
-0.923871
-0.779343
-1.134736
-1.210505
-1.03281
-0.918913
-1.019008
-0.964259
-1.044036
-1.13194
-1.048602
-1.119407
-0.858408
-1.054737
-1.464639
-1.884486
-1.927904
-2.154951
-1.987603
-2.103655
-1.863089
-2.169237
-1.845566
-2.115697
-2.036122
-2.295704
-2.534805
-2.888283
-3.190873
-3.40902
-3.122893
-3.208404
-3.412274
-3.382741
-3.540222
-3.847888
-3.635404
-3.485922
-3.044267
-3.001904
-3.211559
-3.776402
-3.690125
-3.685861
-4.494413
-4.433699
-3.505553
-3.374844

7.960122
10.07992
15.0668
19.35308
18.05134
8.223181
6.818689
8.801437
4.44781
3.775554
5.353931
6.596097
5.402953
5.947265
5.051986
4.201818
4.912117
4.22613
6.900408
4.708938
1.958795
0.698127
0.616462
0.32834
0.514371
0.370428
0.697148
0.300893
0.711464
0.340958
0.418898
0.19838
0.094674
0.029184
0.009751
0.004188
0.012141
0.008717
0.00394
0.004344
0.002291
0.000626
0.001498
0.002685
0.013913
0.015823
0.00722
0.000745
0.001043
0.001034
2.6E-005
3.4E-005
0.001966
0.003173

0.241432
0.285486
0.374149
0.439273
0.422449
0.251763
0.221343
0.266175
0.163268
0.144985
0.188939
0.220873
0.191963
0.206882
0.184477
0.161645
0.182528
0.164041
0.236253
0.179788
0.092167
0.040159
0.036427
0.021573
0.031694
0.024189
0.041368
0.020539
0.042656
0.023163
0.02778
0.014789
0.007836
0.002789
0.001049
0.000491
0.0013
0.000971
0.000476
0.000525
0.000295
9.0E-005
0.000204
0.000352
0.001597
0.001818
0.000905
0.000113
0.000157
0.000158
5.1E-006
6.7E-006
0.000304
0.000483

-71.976696
-81.219247
-97.435307
-132.30439
-158.99029
-149.98986
-86.190116
-74.962017
-91.073664
-54.258891
-47.694016
-63.854533
-75.88241
-65.403435
-71.093982
-62.972692
-54.777232
-62.634758
-55.555245
-82.978089
-61.252142
-29.993888
-12.722924
-11.452238
-6.6441977
-10.026338
-7.5165962
-13.259295
-6.3265292
-13.846251
-7.3908675
-8.9160806
-4.6425943
-2.391064
-0.8267143
-0.3046995
-0.1379626
-0.3876733
-0.2877462
-0.1399172
-0.1553828
-0.0858716
-0.0256513
-0.060213
-0.1004556
-0.508722
-0.582572
-0.280344
-0.034809
-0.0491412
-0.0477065
-0.0015343
-0.0002623
-0.0999811

0.87
0.88
0.89
0.9
0.91
0.92
0.93
0.94
0.95
0.96
0.97
0.98
0.99
1

322.4004
307.6501
304.3656
319.1159
327.1567
336.5259
338.6571
345.1365
353.9274
352.8525
356.8635
346.8711
357.068
365.3759

-4.150274
-5.008682
-5.406777
-4.936636
-4.803923
-4.612095
-4.828241
-4.846614
-4.766915
-5.428117
-5.967534
-8.344616
-10.39743

-4.150274
-5.008682
-5.406777
-4.936636
-4.803923
-4.612095
-4.828241
-4.846614
-4.766915
-5.428117
-5.967534
-8.344616
-10.39743

-4.222385
-5.077964
-5.473109
-4.999882
-4.863923
-4.668663
-4.881156
-4.895603
-4.811636
-5.468117
-6.002175
-8.3729
-10.41743

8.3E-005
1.1E-006
1.1E-007
1.5E-006
2.9E-006
7.5E-006
2.3E-006
2.0E-006
2.9E-006
6.9E-008
2.4E-009
4.1E-017
8.6E-026
0

1.7E-005
2.7E-007
3.2E-008
4.0E-007
7.8E-007
2.0E-006
6.9E-007
6.3E-007
9.4E-007
2.8E-008
1.2E-009
3.6E-017
1.3E-025
0

-0.1557669
-0.0051071
-8.33E-005
-8.74E-006
-0.0001271
-0.0002543
-0.0006726
-0.0002357
-0.0002194
-0.00033
-1.02E-005
-4.18E-007
-1.28E-014
-4.65E-023

Err:523
0

71.5237 for this option

86.5135
11.6792

No. sims
Sum of P&Ls
Average P&L
SumSq P&Ls
Std Dev. of P&L

Err:523
Err:523
Err:523
Err:523
Err:523

Portfolio +
-292.73919
-320.60081
-318.22357
-323.29967
-310.08447
-296.71308
-287.15257
-221.62086
-197.7792
-207.83348
-185.59086
-168.61274
-144.80255
-92.593638
-66.880209
-61.741831
-63.713094
-72.257907
-83.051697
-90.088096
-61.831641
-46.513892
-45.794416
-75.049297
-73.788862
-64.743562
-78.236727
-92.204831
-82.474242
-84.717847
-59.972399
-65.529354
-71.857749

Hedge error

Cashflow

0.4582569626
-0.116242851
-0.106691363
0.0197160367
0.0016875026
-0.075731958
2.4092199568
0.1670370207
-0.116751462
0.1183422129
0.0001329205
0.1751300784
1.6958433785
0.4291680504
-0.083497564
-0.10166155
-0.04561528
-0.026701196
-0.093703748
0.5410834045
0.1393362859
-0.088676655
0.6743850436
-0.123578636
-0.053292354
0.0268868449
0.0046424013
-0.075527563
-0.134470491
0.3595075794
-0.089052011
-0.091534627

28.11488735
-2.717978853
4.746573363
-13.42187559
-13.58683688
-9.844011801
-63.32356827
-23.82980909
9.799036994
-22.26981998
-17.10794512
-23.7531256
-50.61446769
-25.3490987
-5.268708882
1.826367634
8.454582406
10.7164907
6.884538426
-27.77845474
-15.22170994
-0.840724313
29.8971994
-1.436566648
-9.150262736
13.47471575
13.91796093
-9.870682419
2.051382139
-24.44526337
5.425907835
6.190973244

This would be zero if the timestep were infinitesimally sm

and implied volatility and actual volatility were the same
Press F9 to recalculate once
Press Button to run 1000 simulations and calculate avera
WARNING: Go to Tools | Options | Calculation,
check the iteration box and set Maximum Iterations to 1

Balance
292.739187799
321.059064318
318.565905488
323.535553051
310.34023163
296.97070896
287.334649429
224.212285824
200.539480276
210.47894405
188.356510911
171.38046151
147.747344235
97.236335889
71.9553264501
66.7370039301
68.6101038216
77.1127301137
87.8832186209
94.8292968365
67.1172458413
51.9425344186
51.1381826089
81.0711912699
79.6913943233
70.5969350919
84.121086
98.0979523
88.2959624876
90.4091734381
66.0272186488
71.4993617172
77.7404020356

Net Posn, Mto-M

0
0.4582569626
0.3423350041
0.235883359
0.2557645719
0.2576311724
0.1820796197
2.5914270769
2.7602787315
2.6454601414
2.7656548247
2.7677243814
2.9447925451
4.642698
5.0751170767
4.9951733381
4.8970096331
4.8548234599
4.8315218302
4.7412013319
5.2856047392
5.4286422437
5.343766969
6.021893959
5.9025321241
5.8533729892
5.8843586296
5.8931215239
5.8217205905
5.691326731
6.0548196339
5.9700074805
5.8826533217

d1 actual
d2 actual

600

500

400
P&L

Net P&L

Asset

We have paid
It is theoretically worth

300

200

100

Asset (Actual vo

Net Posn, M-to-M

-81.199889
-97.878689
-132.37502
-158.70154
-152.20987
-86.06546
-74.951996
-91.92792
-54.143934
-47.759825
-63.776259
-75.762183
-65.242963
-70.948411
-62.847647
-54.658855
-62.488347
-55.862807
-83.048833
-62.020741
-30.44597
-12.675069
-11.483269
-6.6484943
-10.002575
-7.5641959
-13.350226
-6.431596
-13.90532
-7.3630378
-8.9476232
-4.653656
-2.4153114
-0.83213
-0.3049304
-0.1402554
-0.3855249
-0.2875399
-0.1388832
-0.1548216
-0.0863073
-0.0257382
-0.0600007
-0.1061001
-0.5049496
-0.5812329
-0.2861985
-0.0345176
-0.0486601
-0.049517
-0.0015166
-0.0020152
-0.0991979
-0.160902

-0.068629109
0.0375014891
0.5119217645
0.1633296988
-0.177628782
2.3265857263
-0.064389792
0.04246323
0.9186285355
-0.077042887
0.0992526766
-0.033615115
-0.067174622
-0.114786356
-0.095890208
-0.081036135
-0.080102449
-0.102653911
0.3466799007
0.1288986372
0.8120286757
0.4734019148
-0.03897882
0.0390723542
0.0089521733
-0.016758822
0.0528965141
0.1002800329
0.109570433
0.068805537
-0.022673752
0.0378081219
0.0143204056
0.0259386792
0.0059983237
0.000444448
0.0023910294
-0.001878393
-4.9355E-006
-0.000936734
-0.000452795
0.0004961178
0.0001048632
-0.000170292
0.0057187446
-0.003418808
-0.00093213
0.0060549032
-0.000267245
-0.000446971
0.0018452122
-1.6585E-005
0.0017542477
-0.000713744

9.223192935
16.65944221
34.93971831
26.39714594
-6.780429162
-63.9244047
-11.23812038
16.96590292
-36.92972956
-6.499066382
16.08224363
11.90764936
-10.63944688
5.54497579
-8.24633485
-8.313836986
7.7111149756
-6.771951586
27.49358874
-20.95734841
-30.80617202
-17.31881831
-1.239654874
-4.803743378
3.358377
-2.462141814
5.833630021
-6.827698667
7.578790347
-6.483213361
1.556755696
-4.262424552
-2.227282952
-1.558934056
-0.521783897
-0.16444414
0.24756234
-0.100133306
-0.148863026
0.014904428
-0.069075533
-0.06013342
0.034349313
0.045887098
0.404493944
0.072510899
-0.296373532
-0.245826337
0.013851063
0.000375834
-0.046189839
0.000480905
0.098935612
0.060920812

87.018032303
103.738408463
138.75076908
165.245074557
158.580357442
94.7669978522
83.5952375951
100.619677663
63.7604065342
57.305988062
73.4283599226
85.3874271266
74.8077723739
80.4051319365
72.2151003823
63.9518316633
71.7077285929
64.9859899892
92.5250848438
71.6325266674
40.8765149751
23.5863202476
22.3631815776
17.5750979072
20.9457817822
18.4983071485
24.3448905173
17.5342392391
25.12530785
18.6596883617
20.2295104123
15.9812514746
13.7651593152
12.2158642436
11.7026344456
11.5463850174
11.8020326569
11.7101636664
11.5695006244
11.5925065382
11.5315486004
11.4794900902
11.5218778595
11.5758330957
11.9884329599
12.0693386993
11.7814166617
11.543840204
11.5657747836
11.5742494943
11.5361644668
11.5447235135
11.6517432609
11.7208231481

5.8181435117
5.859719127
6.3757441309
6.543538413
6.3704917117
8.7015383433
8.6432417604
8.6917573777
9.6164722733
9.5461632738
9.652100604
9.6252443251
9.5648097333
9.4567210878
9.3674529017
9.2929762789
9.2193811909
9.1231831062
9.4762514708
9.6117858063
10.430545088
10.91125094
10.87991267
10.926603629
10.943207102
10.934111207
10.994664279
11.102643271
11.219988275
11.296650553
11.281887225
11.327595433
11.349847931
11.383734285
11.397704012
11.406129646
11.416507762
11.422623722
11.430617422
11.437684921
11.445241309
11.4537519
11.461877197
11.469733028
11.483483396
11.48810584
11.4952182
11.509322573
11.517114674
11.524732506
11.534647855
11.542708351
11.552545323
11.559921192

-0.0052699
-8.32E-005
-9.65E-006
-0.0001253
-0.0002516
-0.0006632
-0.0002309
-0.0002147
-0.0003282
-9.98E-006
-4.27E-007
-1.24E-014
-4.54E-023
0

0.0052477691
0.0001664812
-4.4240E-009
9.17415E-007
-1.6867E-006
-2.5203E-006
-0.000008942
-4.6344E-006
-4.5317E-006
-0.00000155
-1.7411E-007
0.00000001
-3.9635E-016
-1.1121E-024
0

-0.150496963
-0.005023876
-7.3637E-005
0.000116581
0.000124492
0.000408954
-0.000441757
-2.0980E-005
0.0001088
-0.00031999
-9.7322E-006
-4.1775E-007
-1.2755E-014
-4.6534E-023

11.5785336336
11.5816175688
11.5896539023
11.5978860807
11.6061319349
11.6146680254
11.6223593824
11.6304769024
11.6387298864
11.6465598598
11.6547055735
11.6628663058
11.6710331703
11.6792057535

Total:

11.6792057535

11.573263739
11.581534341
11.589644248
11.597760757
11.605880345
11.614004785
11.622128492
11.630262196
11.638401698
11.646549881
11.654705146
11.662866306
11.67103317
11.679205754

e timestep were infinitesimally small

d actual volatility were the same

0 simulations and calculate average Net P&L

0.592538
0.292538

600

14
12

500

10

400
P&L

Asset

Options | Calculation,
and set Maximum Iterations to 1

300
6
200

100

4
2

Asset (Actual vol.)

Net Posn, M-to-M

Time

Expected profit when hedging a call option using implied volatility. Inputs in grey cells
See Visual Basic code for fomula
Stock
Growth
Volatility, Actual
Interest Rate
Dividend Yield
Strike
Expiration
Volatility, Implied
Number points in integration

468.5
0.1
0.3
0.07
0
440
1
0.2
1000

Option Value Market

Option Value Theory
Profit hedging with actual
Daily Profit Today
Profit Total Expected

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

using implied volatility

using actual volatility
difference between above
one day's profit, hedging with implied
hedging with implied

atility. Inputs in grey cells