Chapter 6
Extreme Volatility and Option Delta
The risks associated with options include, among other things, asset prices moving up or down, implied volatility moving up or down, and options losing value as time passes. These risks can be quantified with numbers generated by mathematical formulas known as greeks, because most use Greek letters as names. Each greek estimates the risk for one variable.
- Delta measures the change in the option price due to a change in the asset price.
- Gamma measures the change in the option delta due to a change in the asset price.
- Theta measures the change in the option price due to the passage of time.
- Vega measures the change in the option price due to a change in volatility.
- Rho measures the change in the option ...
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