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Gamma

Gamma

What is 'Gamma'

Gamma is the rate of change in an option's delta per 1-point move in the underlying asset's price. Gamma is an important measure of the convexity of a derivative's value, in relation to the underlying. A delta hedge strategy seeks to reduce gamma in order to maintain a hedge over a wider price range. A consequence of reducing gamma, however, is that alpha will also be reduced.

Explaining 'Gamma'

Gamma Behavior

Since an option's delta measure is only valid for short period of time, gamma gives portfolio managers, traders and individual investors a more precise picture of how the option's delta will change over time as the underlying price changes. As an analogy to physics, the delta of an option is its "speed," while the gamma of an option is its "acceleration." Gamma decreases, approaching zero, as an option gets deeper "in-the-money," as delta approaches one. Gamma also approaches zero the deeper an option gets "out-of-the-money." Gamma is at its highest approximately "at-the-money."


Further Reading

The gamma function inequalities of Gurland and GautschiThe gamma function inequalities of Gurland and Gautschi
www.tandfonline.com [PDF]
… CrossRef citations to date. Altmetric. Original Articles. The gamma function inequalities of Gurland and Gautschi. Thomas Erber Illinois Institute of Technology … Original Articles. The gamma function inequalities of Gurland and Gautschi …

Bayesian Inference in Parameters of Gamma Distribution with Multiple Change Points [J]Bayesian Inference in Parameters of Gamma Distribution with Multiple Change Points [J]
en.cnki.com.cn [PDF]
… CrossRef citations to date. Altmetric. Original Articles. The gamma function inequalities of Gurland and Gautschi. Thomas Erber Illinois Institute of Technology … Original Articles. The gamma function inequalities of Gurland and Gautschi …

Risk Measure of FX Options Based on Delta-Gamma-Theta Model [J]Risk Measure of FX Options Based on Delta-Gamma-Theta Model [J]
en.cnki.com.cn [PDF]
… CrossRef citations to date. Altmetric. Original Articles. The gamma function inequalities of Gurland and Gautschi. Thomas Erber Illinois Institute of Technology … Original Articles. The gamma function inequalities of Gurland and Gautschi …

On American options under the Variance Gamma processOn American options under the Variance Gamma process
www.tandfonline.com [PDF]
… CrossRef citations to date. Altmetric. Original Articles. The gamma function inequalities of Gurland and Gautschi. Thomas Erber Illinois Institute of Technology … Original Articles. The gamma function inequalities of Gurland and Gautschi …

Minimum variance unblased estimation in the gamma distributionMinimum variance unblased estimation in the gamma distribution
www.tandfonline.com [PDF]
… CrossRef citations to date. Altmetric. Original Articles. The gamma function inequalities of Gurland and Gautschi. Thomas Erber Illinois Institute of Technology … Original Articles. The gamma function inequalities of Gurland and Gautschi …

Algorithmic Hessians and the fast computation of cross-gamma riskAlgorithmic Hessians and the fast computation of cross-gamma risk
www.tandfonline.com [PDF]
… CrossRef citations to date. Altmetric. Original Articles. The gamma function inequalities of Gurland and Gautschi. Thomas Erber Illinois Institute of Technology … Original Articles. The gamma function inequalities of Gurland and Gautschi …

Options and the gamma knifeOptions and the gamma knife
jod.pm-research.com [PDF]
… CrossRef citations to date. Altmetric. Original Articles. The gamma function inequalities of Gurland and Gautschi. Thomas Erber Illinois Institute of Technology … Original Articles. The gamma function inequalities of Gurland and Gautschi …

REDD+ Readiness progress across countries: time for reconsiderationREDD+ Readiness progress across countries: time for reconsideration
www.tandfonline.com [PDF]
… CrossRef citations to date. Altmetric. Original Articles. The gamma function inequalities of Gurland and Gautschi. Thomas Erber Illinois Institute of Technology … Original Articles. The gamma function inequalities of Gurland and Gautschi …

The gamma-exponentiated exponential distributionThe gamma-exponentiated exponential distribution
www.tandfonline.com [PDF]
… CrossRef citations to date. Altmetric. Original Articles. The gamma function inequalities of Gurland and Gautschi. Thomas Erber Illinois Institute of Technology … Original Articles. The gamma function inequalities of Gurland and Gautschi …

Ruin probabilities in classical risk models with gamma claimsRuin probabilities in classical risk models with gamma claims
www.tandfonline.com [PDF]
… CrossRef citations to date. Altmetric. Original Articles. The gamma function inequalities of Gurland and Gautschi. Thomas Erber Illinois Institute of Technology … Original Articles. The gamma function inequalities of Gurland and Gautschi …


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Section 508

WCAG 2.0

Section 508