Delta

What it means

The change in an option’s value for a small change in the underlying price.

The exam angle

Ranges 0 to 1 for a call and −1 to 0 for a put. Roughly the hedge ratio, and loosely read as the risk-neutral probability of finishing in the money.

Where it appears in the syllabus

• DerivativesCFA Level I · exam weight 6–9% · Forwards, futures, swaps, options and arbitrage-free pricing.
• Valuation & Risk ModelsFRM Part I · exam weight 30% · VaR and ES, option valuation, bond risk, stress testing, credit and op risk.
• Market Risk Measurement & ManagementFRM Part II · exam weight 20% · VaR and ES estimation, backtesting, EVT, GARCH, copulas, FRTB.

Related terms

• Basis riskThe risk that a hedge and the exposure it hedges do not move together, leaving a residual.
• Black–Scholes–Merton modelA closed-form model for European option prices, assuming lognormal prices, constant volatility and continuous…
• Call optionThe right, without the obligation, to buy an asset at the strike price by expiry.
• Lognormal distributionThe distribution of a variable whose natural logarithm is normally distributed.
• Put optionThe right, without the obligation, to sell an asset at the strike price by expiry.
• Put–call parityThe no-arbitrage relationship linking a European call, a European put, the underlying and a risk-free bond of the same…