11-18 - -Delta: Δ >the rate of change in the price of...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Derivatives November 18 *Futures Options -units >vary depending on the underlying asset >each asset has a unique relationship among ~asset price ~futures contract specs ~option -Basic underlying asset categories >commodity >financial >currency >others -Ex: >gold is quoted in $/ounce >sugar is quoted in cents/pound -FO margin >determined by volatility and risk of loss >futures options use unique margin accounting >SPAN = Standard Portfolio Analysis of Risk -FO uses >same as futures with flexibility >floors, ceilings, and spreads, etc >employs all option strategies >arbitrage (lots of mispricing) -collar: creates a floor and a ceiling for interest rates *Greeks -Delta -Gamma -Theta -Vega -Rho -measure the various risks of an option -every option has risk related to the variables contained in the price of the option
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: -Delta: Δ >the rate of change in the price of an option, relative to the price change in the underlying asset >also called the hedge ratio Δ = N(d1) = ΔC/ΔP-Gamma: Γ >the rate of change in delta, relative to price change of the asset >low gamma = not changing hedge a lot Γ = N(d1) – N(d1) P+1-Theta: Θ >rate of change in the option price relative to a one-day change in expiration >also called time decay Θ = C T – C T-1-Vega: Λ >rate of change in the option price relative to a 1% change in volatility Λ = C V – C V+.01-Rho >rate of change in the option price relative to a 1% increase in the discount rate...
View Full Document

This note was uploaded on 12/21/2011 for the course SPEA V366 taught by Professor Aleksey during the Fall '11 term at UCSB.

Page1 / 2

11-18 - -Delta: Δ >the rate of change in the price of...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online