Greeks (Finance) Explained - Derivatives

In mathematical finance, the Greek is a quantity that represents the ability to change the underlying parameters on which the value of an instrument or portfolio of financial instruments depends. The name is used because the most common sensitivities are referred to by the Greek letter, as are other financial measures. Greeks are an important tool in risk management and are used as a measure of a financial instrument's sensitivity to changes in value. For this reason, the Greeks who are best suited to hedging are well defined to measure price, time and volatility changes, and this is a measure of the underlying parameters of a financial instrument's sensitivity to changes in the value of that instrument or portfolios of financial instruments. Greece in a black money model is calculated and the measure you want to hedge your portfolio against an unfavorable change in market conditions. Component risk can be treated in isolation and the portfolio can be rebalanced accordingly to achieve the desired risk (see Delta Hedge as an example). The list is by no means exhaustive, but the remaining sensitivities on the list are so common that they bear common names. The most common Greek are: RHO, Rho - ROH, ROH - ROI and RHO - OO, which are the primary inputs for the Black - Scholes model. Therefore, higher - risky - free interest rates are not common, and the options arising from these changes are generally insignificant; therefore, they do not result in a significant change in the sensitivity of the derivative. Several names (vega, zomma, etc.) have been invented that resemble Greek letters, and their use is probably due to their similarity to the common names of other derivatives such as RHO and ROI.