Mastering Python for Finance - Second Edition

The Greeks for free

In the binomial tree pricing models that we have covered so far, we traversed up and down the tree at each point in time to determine the node values. From the information at each node, we can reuse these computed values easily. One such use is the computation of Greeks.

The Greeks measure the sensitivities of the price of derivatives, such as options with respect to changes in the parameters of the underlying asset, often represented by Greek letters. In mathematical finance, the common names associated with Greeks include alpha, beta, delta, gamma, vega, theta, and rho.

Two particularly useful Greeks for options are delta and gamma. Delta measures the sensitivity of the option price with respect to the underlying asset ...