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Category Archives: Black Scholes

AlphaGammaRent

Understanding Alpha or Gamma Rent

Alpha, Fair Alpha or Gamma Rent. N. N. Taleb explains Alpha or the Gamma Rent, in his book Dynamic Hedging, as ‘Theta per Gamma ratio’. At first the concept is quite difficult to grasp but when we reduce the risk free rate and the dividend

Option P&L with Gamma correction

Gamma Correction, Delta Hedging P&L & Rebalancing Frequency

Gamma correction & Delta hedging P&L results. A simple case study Theoretically speaking in the Black Scholes world the cost of the hedge should be close to the theoretical value of the option. In our cash accounting P&L we have included the theoretical premium received

HedgingGreeks

Hedging higher order Greeks – Solver Solution review

Hedging Higher order Greeks – Lesson Three We are now ready to solve the Gamma Vega hedging optimization model in Excel created in our first two lessons earlier. For a quick review see: Lesson One – Introduction Lesson Two – Setting up the Solver Model