After exploring how to price options using Black–Scholes and Monte Carlo methods, this lecture turns to the next question: how do those prices react when market variables move?
That’s the purpose of the Greeks — the set of partial derivatives that measure an option’s sensitivity to its key inputs. In practice, they form the language of risk management in derivatives markets.
The lecture introduces the main Greeks and their interpretations:
📈 Delta — sensitivity to the underlying price
📉 Gamma — curvature of Delta, second-order price sensitivity
⏳ Theta — sensitivity to time (time decay)
🌪️ Vega — sensitivity to volatility
🏦 Rho — sensitivity to the interest rate
Each of these plays a role in understanding and managing an option book.
Delta and Gamma relate to price movements, Vega captures volatility risk, Theta tracks the erosion of time value, and Rho connects to the cost of carry through interest rates.
The session also summarizes the signs of the Greeks for buyers and sellers of calls and puts — showing how long option positions benefit from volatility but lose from time decay, while short positions show the reverse.
These notes emphasize interpretation and intuition: the Greeks are not just derivatives of a formula, but a framework for reading the pulse of an option portfolio.
