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gamma


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One of a group of measures related to the pricing of options that are known as greeks. Expressed in formal terms, the gamma is the second partial derivative of the option price with respect to the value of the underlying: that is, it measures how rapidly the relationship between the option price and the value of the underlying will change with changes in the value of the underlying. Whereas the delta of an option expresses how much an option price will change with a change in the value of the underlying, the gamma expresses how much the delta will change with a change in the underlying. The value of the gamma is highest for an at-the-money option.

Subjects: Economics.


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