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Unformatted text preview: What are beta, gamma, rho, vega and theta delta options? Delta , measures the rate of change of option value with respect to changes in the underlying asset's price. Given by: = N(d1) for European call option n.d.p stock. Delta of a portfolio is the sum of all the individual option's deltas. Theta, , measures the rate of change of the value of the portfolio with respect to the passage of time with all else remaining the same. (Time decay) Given by: = / t European put is inverse. Gamma, , of a portfolio of options on an underlying asset is the rate of change of the portfolio's delta with respect to the price of the underlying asset. Gamma measures the curvature. A long call and long put will have positive gamma while the short counterparts will always be negative. Vega, V, measures the rate of change of the value of the portfolio with respect to the volatility of the underlying asset. Higher volatility, or vega, results in higher option prices. This is true because higher underlying asset....
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This note was uploaded on 11/06/2011 for the course ECONOMICS ebc2034 taught by Professor Vaartjes during the Spring '11 term at Maastricht.
- Spring '11