The Greeks
In this lesson, you'll learn what the Greeks are and how they measure sensitivity in the Black-Scholes option pricing model. The Greeks—delta, gamma, theta, rho, and vega—each show how option value changes in response to different inputs like share price, time, interest rates, and volatility.
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In this lesson
- 0:00 The Greeks: Option sensitivity measures
- 0:21 Delta explained: Share price sensitivity
- 0:51 Gamma: Rate of change in delta
- 1:19 Rho and Vega: Interest rates and volatility
- 1:43 Theta: Time decay in option value
About this lesson
Understanding these measures is essential for AFM, as they help you interpret how options behave under different market conditions and apply the Black-Scholes model with confidence. This video focuses on the five main Greeks and their practical meaning. Delta measures how option value changes with the underlying asset price. Gamma shows how delta itself changes as the asset price moves. Theta captures the effect of time decay on option value. Rho reflects sensitivity to changes in risk-free rates. Vega measures sensitivity to volatility in the share price. While vega and rho sit outside the AFM syllabus, delta, gamma, and theta are core to your understanding of option valuation and will support your case study and exam performance.
Duration: 2m
Transcript
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