Option Greeks - University of Texas at Austin
[Pages:43]1 Introduction
Option Greeks
1 Introduction
Option Greeks
Set-up
? Assignment: Read Section 12.3 from McDonald. ? We want to look at the option prices dynamically. ? Question: What happens with the option price if one of the inputs
(parameters) changes? ? First, we give names to these effects of perturbations of parameters
to the option price. Then, we can see what happens in the contexts of the pricing models we use.
Set-up
? Assignment: Read Section 12.3 from McDonald. ? We want to look at the option prices dynamically. ? Question: What happens with the option price if one of the inputs
(parameters) changes? ? First, we give names to these effects of perturbations of parameters
to the option price. Then, we can see what happens in the contexts of the pricing models we use.
Set-up
? Assignment: Read Section 12.3 from McDonald. ? We want to look at the option prices dynamically. ? Question: What happens with the option price if one of the inputs
(parameters) changes? ? First, we give names to these effects of perturbations of parameters
to the option price. Then, we can see what happens in the contexts of the pricing models we use.
Set-up
? Assignment: Read Section 12.3 from McDonald. ? We want to look at the option prices dynamically. ? Question: What happens with the option price if one of the inputs
(parameters) changes? ? First, we give names to these effects of perturbations of parameters
to the option price. Then, we can see what happens in the contexts of the pricing models we use.
Vocabulary
Notes
? is rarer and denotes the sensitivity to the changes in the dividend yield
? vega is not a Greek letter - sometimes or are used instead ? The "prescribed" perturbations in the definitions above are
problematic . . . ? It is more sensible to look at the Greeks as derivatives of option
prices (in a given model)! ? As usual, we will talk about calls - the puts are analogous
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