put-call delta parity

$\begin{displaymath} \frac{\partial v(x,K,T,t,\sigma,r_d,r_f,+1)}{\partial x}-\fr... ...partial v(x,K,T,t,\sigma,r_d,r_f,-1)}{\partial x}=e^{-r_f\tau} \end{displaymath}$

(26)

In particular, we learn that the absolute value of a put delta and a call delta are not exactly adding up to one, but only to a positive number $e^{-r_f\tau}$ . They add up to one approximately if either the time to expiration $\tau$ is short or if the foreign interest rate

is close to zero.

2000-06-11