Lecture 2 Part 2: The Greeks

Question 1

Explain the utility of the Greeks in risk management

Answer 1

The greeks are used to measure a portfolios sensitivity to changes in different variables

Question 2

_____ measures how sensitive an investment portfolio is towards changes in prices of the underlying
A) Delta
B) Gamma
C) Theta
D) Vega
E) Rho

Answer 2

(A) DELTA measures how sensitive an investment portfolio is towards changes in prices of the underlying

Question 3

____ measures how sensitive the delta is to changes in prices of the underlying
A) Delta
B) Gamma
C) Theta
D) Vega
E) Rho

Answer 3

(B) GAMMA measures how sensitive the delta is to changes in prices of the underlying

Question 4

____ measures how sensitive a portfolio’s value is to changes to time to maturity
A) Delta
B) Gamma
C) Theta
D) Vega
E) Rho

Answer 4

(C) THETA measures how sensitive a portfolio’s value is to changes to time to maturity

Question 5

___ measures how sensitive a portfolio is to the risk-free rate
A) Delta
B) Gamma
C) Theta
D) Vega
E) Rho

Answer 5

(E) RHO measures how sensitive a portfolio is to the risk-free rate

Question 6

___ measures how sensitive a portfolio is to changes in volatility of the underlying
A) Delta
B) Gamma
C) Theta
D) Vega
E) Rho

Answer 6

(D) VEGA measures how sensitive a portfolio is to changes in volatility of the underlying

Question 7

The delta of a put is always (negative/positive) and the delta of a call is always (negative/ positive).
Select the correct term.

Answer 7

The delta of a put is always NEGATIVE and the delta of a call is always POSITIVE.

Question 8

The rho (measure of option sensitivity towards change in interest rate) is always ____ (positive/negative) for a call, and always ___ (positive/ negative) for a put.

Choose the right term

Answer 8

The rho (measure of option sensitivity towards change in interest rate) is always POSITIVE for a call, and always NEGATIVE for a put.