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Delta Hedging with the Modified Binomial Tree

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Listed:
  • Brogi, Athos

Abstract

The delta hedging performances of the modified binomial tree (MBT) and the benchmark practitioner Black-Scholes (PBS) model are compared for both put and call options on the S&P 500 index. MBT performance is either better or about the same. Specifically, the MBT performs better for deep out of the money (DOTM), out of the money (OTM), at the money (ATM) puts and OTM calls, while performance is about the same for ATM calls and in the money (ITM) puts and calls. MBT performs better for puts than for calls.

Suggested Citation

  • Brogi, Athos, 2026. "Delta Hedging with the Modified Binomial Tree," MPRA Paper 128937, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:128937
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    File URL: https://mpra.ub.uni-muenchen.de/128937/1/MPRA_paper_128937.pdf
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    References listed on IDEAS

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    1. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," The Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-343.
    2. Hull, John & White, Alan, 2017. "Optimal delta hedging for options," Journal of Banking & Finance, Elsevier, vol. 82(C), pages 180-190.
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    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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