Greek Letters and Portfolio Insurance

Cheng-Few Lee, John Lee, Jow-Ran Chang and Tzu Tai
Additional contact information
Cheng-Few Lee: Rutgers University, Department of Finance
John Lee: Center for PBBEF Research
Jow-Ran Chang: National Tsing Hua University, Department of Quantitative Finance
Tzu Tai: Mezocliq, LLC

Chapter Chapter 28 in Essentials of Excel, Excel VBA, SAS and Minitab for Statistical and Financial Analyses, 2016, pp 901-917 from Springer

Abstract: Abstract In Chap. 26 , we have discussed how the call option value can be affected by stock price per share, exercise price per share, the contract period of the option, the risk-free rate, and the volatility of the stock return. In this chapter, we will mathematically analyze these kinds of relationships. Parts of these mathematical relationships are called “Greek letters” by finance professionals. Here we specifically derive Greek letters for call (put) options on non-dividend stock and dividend-paying stock. Some examples will be provided to explain applications of these Greek letters. Sections 28.1–28.5 discuss the formula, Excel function, and applications of delta, theta, gamma, vega, and rho, respectively. Section 28.6 derives the partial derivative of stock options with respect to their exercise prices. Section 28.7 describes the relationship between delta, theta, and gamma and their implication in delta-neutral portfolio. Section 28.8 presents a portfolio insurance example. Finally in Sect. 28.9, we summarize and conclude this chapter.

Keywords: Greek letters; Delta; European call option; Delta hedge; Theta; Gamma; Vega; Rho; Portfolio insurance (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/978-3-319-38867-0_28

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