Hedge ratio (delta)

Definition:

For options, ratio between the change in an option's theoretical value and the change in price of the underlying stock at a given point in time. 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 2000 common shares, a 75% hedge ratio would be short (long) 1500 common for every 1000 preferred long (short). See: Delta.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

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Central Counterparty Clearing House

An organization in European countries that helps facilitate trading done in European derivatives and equities market.

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