N(d₁)in the Black-Scholes model represents I.the call option delta; II.a hedge ratio; III.the cumulative probability function A)I only B)II only C)III only D)I, II, and III

Question

Quizplus · Accepted Answer

N(d1) in the Black-Scholes model represents all three: the call option delta, which indicates how much the price of an option is expected to move relative to a small change in the price of the underlying asset; a hedge ratio, which is used to construct a riskless portfolio by hedging positions in the option with positions in the underlying asset; and the cumulative probability function, which gives the probability that the option will finish in the money under a log-normal distribution assumption.

N(d1)in the Black-Scholes Model Represents

N(d₁)in the Black-Scholes Model Represents