Greeks Finance

In mathematical finance , the Greeks are the quantities representing the sensitivity of the price of derivatives such as options to a change in underlying parameters on which the value of an instrument or portfolio of financial instruments is dependent. The name is used because the most common of these sensitivities are denoted by Greek letters (as are some other finance measures). Collectively these have also been called the risk sensitivities , [1] risk measures [2] :742 or hedge parameters . [3]

Influences on an Option's Price Figure 1 lists the major influences on both a call and put option's price. The plus or minus sign indicates an option's price direction resulting from a change in one of the price variables in Figure 1. For example, taking call options and looking at the impact of a change in implied volatility shows that when there is a rise in implied volatility, there is an increase in the price of an option, all other things remaining the same.

_ (Delta) represents the rate of change between the option's price and a $1 change in the underlying asset's price – in other words, price sensitivity . Delta of a call option has a range between zero and one, while the delta of a put option has a range between zero and negative one. For example, assume an investor is long a call option with a delta of 0.50. Therefore, if the underlying stock increases by $1, the option's price would theoretically increase by 50 cents, and the opposite is true as well.


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