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Option Greeks Primer

Books Option Greeks Primer


Option Greeks Primer

Posted By uzma

This book provides a hands-on, practical guide to understanding derivatives pricing. Aimed at the less quantitative practitioner, it provides a balanced account of options, Greeks and hedging techniques avoiding the complicated mathematics inherent to many texts, and with a focus on modelling, market practice and intuition.

What do we cover?

The book is organized in four sections.

The first two chapters (chapter zero and one) are background and refresher of basic materials and can easily be skipped by the more experienced readers. They cover basic themes, a few relationships and numerical examples to reinforce calculation and usage conventions of Greeks.

The second section begins with a simple delta hedging simulation for a vanilla call option. The simulation is used to examine the components of hedging PnL. We extend the model to vanilla put options. We use the PnL model to build a better understanding of the behaviour of Delta and two minor Greeks.

The third section is dedicated to volatility. My personal demons as a student in the field were volatility surfaces and hedging higher order Greeks. Volatility, Vega and Gamma surfaces, therefore, make an extended appearance. So does the topic of hedging higher order Greeks using Excel Solver.

We begin with hedging a single position with deep out of money options and then graduate to a portfolio of short positions and more sophisticated Solver models. Solver is used to illustrate multiple scenarios, objective functions and hedging perspectives for Gamma and Vega neutral hedging models.

The fourth and final sections ties up a few loose ends by reviewing two application questions, spend some additional time on Theta and Rho and closes up with complimentary annexures.

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Written by uzma