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FINANCIAL MARKET COURSES

Options - Greeks (Part I)

The various sensitivities of an option to different factors are called ‘the Greeks', because each of those sensitivities is usually denominated by a Greek letter: delta, gamma, theta, and so forth. The management of options, particularly the management of option portfolios, is complicated by these multiple sensitivities. A key phrase for market participants is 'dynamic hedging'; unlike some other financial instruments, hedging and management of option portfolios requires constant vigilance. Awareness of the various changes in value due to market movements is essential.

 

The two courses in this series provide definitions of each of the key sensitivities, and show the calculations for values in terms of the theoretical continuous-time Black-Scholes-Merton option pricing model. The courses also show how these values change with respect to common variables such as time and strike price. Finally, 'real world' adjustments to the theoretical values are examined in order for those sensitivities to be useful to an option participant. The first of the courses focuses on delta and gamma.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Define delta, explain how it is measured, how it changes, and how it is managed

    Define gamma, explain how it is measured, how it changes, and how it is managed

  • COURSE OUTLINE

    Topic 1: Delta

    Definition and its variants

    Positional Exposure and Delta Hedging

    Deltas of Other Instruments

    Calculation of Modified Delta

    Relationship between strike price, asset price, and delta

    Topic 2: Gamma

    Definition and its variants

    Measurement of Gamma

    How Gamma varies with Option Moneyness, time to Maturity and Volatility

    Concept of Gamma Hedging

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    75 Minutes

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