Abstract
This chapter introduces the Greeks as derivatives of the option price with respect to the variables and parameters of the Black-Scholes equation. Their use in hedging risks and assessing the resilience of a hedge with respect to parameter variations, is discussed. A discussion of the volatility smile and the concept of value-at-risk follows. Finally, combinations of simple options, such as bull-spreads or straddles, are introduced and their use to adapt one’s investment to one’s expectations are briefly touched upon.
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References
J.C. Hull, Options, Futures, and Other Derivatives, 8th edn. (Pearson, Boston, 2012)
Web site of the Basel Committee on Banking Supervision. Available online at https://www.bis.org/bcbs/
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Ziemann, V. (2021). The Greeks and Risk Management. In: Physics and Finance. Undergraduate Lecture Notes in Physics. Springer, Cham. https://doi.org/10.1007/978-3-030-63643-2_6
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DOI: https://doi.org/10.1007/978-3-030-63643-2_6
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