Define the Term “Greeks” in Financial Derivatives.
The "Greeks" are a set of risk measures used in the options market to assess the sensitivity of an option's price to changes in various underlying factors. The primary Greeks are Delta, Gamma, Theta, Vega, and Rho.
Each Greek measures a specific risk exposure, such as Delta for the change in the underlying price, and Theta for time decay. Traders use the Greeks to manage and hedge the risk profile of their options portfolio.
Glossar
Delta
Parameter ⎊ In options theory, this measures the rate of change of an option's price relative to a one-unit change in the price of the underlying asset, often termed the first derivative of the option price with respect to the asset price.
Volatility Exposure
Risk ⎊ Volatility exposure quantifies the portfolio's sensitivity to changes in the expected turbulence of the underlying cryptocurrency asset, representing a key risk factor.
Risk Measures
Volatility ⎊ Volatility measures the magnitude of price fluctuations in an asset over a specified period, serving as a primary risk measure in derivatives trading.
Gamma
Parameter ⎊ Representing the second derivative of an option's price with respect to the underlying asset price, this Greek measures the rate of change of Delta, indicating how quickly the hedge ratio needs to be adjusted.
Theta
Decay ⎊ Theta, within cryptocurrency options and financial derivatives, quantifies the rate of extrinsic value loss as time passes, representing a critical component of options pricing models.
Options Market
Instrument ⎊ The options market facilitates the trading of derivative instruments that grant the holder the right, but not the obligation, to buy or sell an underlying asset at a specified strike price before or on a certain expiration date.