13. The Greeks
The Greeks measure the sensitivity of derivative prices to changes in pricing variables such as time, the price of the underlying security, interest rates, and volatility. The name comes from the Greek letters used to represent them. Normally, the Greeks refer to options, although they can apply to any derivative. The concept also extends to any structured security that contains derivatives.
Delta and theta, discussed throughout the book, are two of the option Greeks. In this chapter, these and other Greeks are presented more formally. Also, beginning with this material, we shift focus from attributing changes in value to understanding how to manage those changes.
To illustrate the difference in contexts, think about the term ...
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