Definition of Greeks

Financial Terms Beginning with G

What are the Greeks

The Greeks are mathematical calculations, commonly denoted by the letters of the Greek alphabet, which are used to represent the key variables that affect the price of a derivative instrument. Greeks measure the risk sensitivities of an option’s price to changes in a parameter on which the option is dependent.

The Greeks are a valuable tool for options traders to help evaluate the risk of different options but since Greeks are based on complicated mathematical formulas, they are most often calculated using a computerized solution to provide accurate results.

The most commonly used of the Greeks are delta, vega, theta, gamma and rho, all of which are known as first-order Greeks or major Greeks, with the exception of gamma, which is known as a second-order Greek or minor Greek.

An option's delta and gamma relate to changes in the price of underlying while theta measures the effects of time. The vega relates to changes in implied volatility and rho relates to changes in interest rates.

First-Order Greeks

  • Delta
  • Vega
  • Theta
  • Rho
  • Lambda
  • Epsilon

Second-Order Greeks

  • Gamma
  • Vanna
  • Charm
  • Vomma
  • Veta
  • Vera

Third-Order Greeks

  • Speed
  • Zomma
  • Color
  • Ultima

Multi-Asset Options Greeks

Multi-asset options Greeks are used if the value of a derivative contract is dependent on two or more underlying assets. The Greeks are extended to include the cross-effects between the underlying assets.

  • Correlation Delta
  • Cross Gamma
  • Cross Vanna
  • Cross Volga

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