Which of the following best describes the delta normal method?
A)a method of managing a delta hedge to assure a low gamma
B)the historical method when the distribution is normal
C)the Monte Carlo method when price changes are normally distributed
D)the analytical method applied to options
E)a method of measuring changes in an option's delta

Question

Quizplus · Accepted Answer

EThe delta normal method is an analytical approach used in risk management, particularly in the valuation of options and other derivatives. It involves measuring changes in an option's delta, which represents the sensitivity of the option's price to changes in the price of the underlying asset. This method assumes a normal distribution of price changes and applies analytical techniques to estimate risk metrics, such as Value at Risk (VaR), based on the delta of the options or portfolio under consideration.

Which of the Following Best Describes the Delta Normal Method