Dislikedfti sir,
what do you mean by 'Delta'? sorry for asking, just that i always encounter this word but don't really have a clue... and also you mention about 'sigma', eon's agoif you won't mind me askin' funny questions.
thank you dear sir.
carloIgnored
Hi ksl.
This is the metdoloy of treasury managers in risk management , in that he could offset risk in any # of dealers books against his book by the use of the delta.
You see in a bank, there are all sorts of dealers managing all sorts of instruments , like the deposits dealers , forex dealers , capital market dealers,
options OTC dealers, etc............................So hecannot be looking at all the dealers exposures to know , lets say what the banks exposure was in USD against his natural currency, All the TM need is to generate net USD deltas for all USD activities and he woulds know his net exposure, in this case the USD. if the delta read he was exposed, he could initiate trade positions to neutralise the exposure.
However as the component of delta is dynamic . So as the price of , in this case USD/??? changes then his delta shifts as well. In effects , it has to be dynamically managed as well, requiring the TM to have an opinion to the exposure.
This has no important significance for speculative traders. It is a management tool to curb risk, whereas traders creates risk exposures. Unless you traded multiple instruments of same risk denomination.
deltas , sigma, vega teta... etc these are the "greek" components in management & pricing models that calculates the respective risk elements. These can be plotted and identified graphically.
regards