First-order Greeks are in blue, second-order Greeks are in green, and alpari forex calculator compound-order Greeks are in yellow. The Greeks are vital tools in risk management. Scholes model are relatively easy alessandra chirizzi forex exchange calculate, a desirable property of financial models, and are very useful for derivatives traders, especially those who seek to hedge their portfolios from adverse changes in market conditions.
The most common of the Greeks are the first order derivatives: delta, vega, theta and rho as well as gamma, a second-order derivative of the value function. For a vanilla option, delta will be a number between 0. For example, if the delta of a call is 0. 42 then one can compute the delta of the corresponding put at the same strike price by 0.
58 and add 1 to get 0. Vega is the derivative of the option value with respect to the volatility of the underlying asset. Vega is not the name of any Greek letter. Presumably the name vega was adopted because the Greek letter nu looked like a Latin vee, and vega was derived from vee by analogy with how beta, eta, and theta are pronounced in American English. Another possibility is that it is named after Joseph De La Vega, famous for Confusion of Confusions, a book about stock markets and which discusses trading operations that were complex, involving both options and forward trades. Vega can be an important Greek to monitor for an option trader, especially in volatile markets, since the value of some option strategies can be particularly sensitive to changes in volatility.
Except under extreme circumstances, the value of an option is less sensitive to changes in the risk free interest rate than to changes in other parameters. For this reason, rho is the least used of the first-order Greeks. Rho is typically expressed as the amount of money, per share of the underlying, that the value of the option will gain or lose as the risk free interest rate rises or falls by 1. Obviously, this sensitivity can only be applied to derivative instruments of equity products.