FX Delta Conventions
Premium-adjusted, forward and spot delta quotation choices.
Name the object before manipulating it.
The same option can carry different delta numbers under valid market conventions.
Premium-adjusted, forward and spot delta quotation choices.
State the governing relationship.
Notation and units
Decimal rates and volatilities, year-fraction time and continuous compounding unless stated otherwise.
Draw the boundary of the claim.
Definitions, units and information sets are fixed before the mathematical relationship is applied.
Rates and volatilities use decimal units and time uses year fractions unless stated otherwise.
The relationship is local to its stated assumptions and should not be extrapolated mechanically.
“An unstated convention is a future reconciliation break.”— THEQUANTBATEMAN
Connect the definition to an observable.
Smile construction and strike inversion require the exact pair-specific convention.
Translate the concept into a risk question.
State the convention, identify the observable and ask which FX risk remains after the proposed hedge.
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