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# Calculations of Greeks

in the Black and Scholes Formula
Claudio Pacati

May 15, 2013

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N on-div idend pay ing stock

In the Black and Scholes model the price of an European call option on a non-dividend
paying stock is
(1)

where 8 is the stock's price at valuation date, K is the strike price, r is the (constant) spot
rate, T = T- t, is the time to maturity, T the expiry, i the valuation date and

dt

=

d2

=

log s·
I<

log .!i
I<

+ (r + la2 )T
a

ft

2

(2)

,

T

+ (r -

l2 a 2 )T

aft

= d1 -

a.;T ,

(3)

where a is the stock's volatility.

Theorem 1. The greeks for the call option are:

fJC
= N(dt) ,
88
8 2C
N' ( dt)
K e- r-r N' (d2)
= 88 2 = 8a.;T =
8 2a.;T

=

delta:

b.c

gamma:

rc

theta:

= _ K - r-r N(d ) _
E-·~7C = fJC
fJL
r e
2

rho:

PC=

c;;: =

11ega:

Vc =

~: = .;T8N'(dt) = .;TK e- r-r N'(d2)

T

a8N'(dt) = -K - r-r [ N(d ) a N'(d2) ]
e
r
2 +
2 VT
2 VT

,

Ke- r-r N(rh) ,

In order to prove the theorem we collect some common calculations in the following

Le mma 1. It holds

8N'(dt)- Ke- r-r N'(d2) = 0 ,
f)dl
orh
88
88
f)dl
orh

or

od2 od1
fJt
fJt
od1 _ od2 =
oa
oa

---

1

(4)

1

8a,;T '

V7
a

fJr

a

2ft '
V7
.

(5)
(6)
(7)
(8)

Proof. First of all, we remember that
N '( x )

=

_ ~e
1_ - x2 /2
y27f

Statement (4) holds if and only if

Notice that the right hand side of the last condition is

d~-d2
1
1
c
c
s
= (d1 + d2)(d1- rh) = (2d1- ayT)ayT =log K
2
2
2

s

1 2
+ (r + 21 a 2 )T - 2
a

=log K +rT
and this completes the proof of (4) .
The proofs of the other statements a.re straightforward calculations.

D

Proof of theorem 1. For the deUa, we have that
b.c =

~~ =

N(d1) + SN'(d1) ~i -K e- rr N'(d2) ~~~

= N(d1) + ~i [SN'(d1 ) - Ke - rr N'(d2)]

by (5)

= N(d1)

by (4).

(9)

Using (9) and (5) the gamma is

r

c

= fPC = of:::.c = N'(d ) od1 = N'(di)
1
oS2
oS
oS
SajT

By (4) it can be also written in the form
K e - •"'r N'(d2)

rc = _

Ke - rr N'(d2)
S 2ajT

____,_s,__
· =--

SaJT

The theta is

8c

SN'(d!) od 1 - r K e- rr N(d2)- K e- rr N'(d2) od2
ot
ot
= - rK e- rr N(d2) + od1 [S N'(d1) - K e- rr N'(d2)] - aK e- rr N'(rh)
ot
2jT
1
= - rK e- rr N(d2)- aS;)/ )
=

=

oC
ot

=

- rKe- rr N(d2)- aKe- rrN'(d2)

by (7)
by (4)
by (4)

2jT
=-K e- rr [r N (d2)

+ a~~2 ) ]

.

For the rho we have

Pc

=

oC
or

=

S N'((1,1
.1 ) od1
or

= TK e- rr N(d2)

.
+ T K e- rr N((1,2

+ ~~1

1 )

.1 ) od2
- K e- rr N'((1,2
or

(SN'(d1)- Ke- rr N'(d2)]

= TK e- rr N(rh)

by (6)
by (4) .

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Finally, the vega is

Vc

=

~: = SN'(dt)~; -Ke-rrN'(d2)~~

= ,;7-K e- rr N'(rh) + ~; [SN'(dt)- Ke- rr N'(rh)]

by (8)

= ,;7-K e- rr N'(rh)
= ,;7-SN'(dl)

by (4)
D

by (4) .

Consider now a forward contract, with strike K and maturity T, i.e. with payoff at time
T given by F(T) = S(T)- K. Denote by F = F(i) = S(t)- K e- r(T- t) = 8- Ke- rr its
price at time i .

E xercise. The Greeks of the forward contract are

oF .1

deUa:

b.p

= as =

gamma:

rF

= oS2 = 0 ,

theta:

t:)p

'

{:)2p
·

=

{:)F
7iL
= -rK e- rr
{:)F

rho:

pp= Or =TKe

vega:

Vp

- rr

,

,

oF

= OCT = 0 .

By using the put-call parity relation C- P = F and the previous exercise it is straightforward to compute the Greeks for a put option.

E xercise. The Greeks of the p1Lt option are
{:)P

delta:

b.p

= as = - N( -d1) ,

gamma:

rP

8 2P
N'(dl)
Ke- rrN'(rh)
---:-;:,....--=-....::..:..
- 8S 2 - SCTy'T S 2CTy'T

theta:

E-)p

= {:)P = rKe- rrN(-d2)- CTSN'(dl) =Ke- rr [rN(-d2)- CTN'(d2)] '
m
2,;72,;7-

rho:

PP

=

11ega:

Vp

= ~: = ,;7-SN'(di) = ,;7-K e- rr N'(d2)

-

-- - - - -

0: =

-TKe- rrN(-d2) ,

(In order to better int.erpret the forma?Llae, recall that for every x, N'(x)

2

= N'( -x)).

Divide nd paying stock

Assume now the stock pays dividends at a constant dividend yield 8. We know that the
call option price Black and Scholes formula becomes
(10)

E xer cise. It holds

and form?Llae (5), (6), (7) and (8) remain the same in the non-dividend paying case.

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Exercise. The gre.ek.<; for the call option are:
della:
gamma:
theta:

rho:
ve,qa:

We know t.he forward price in Lhe dividend paying case t.o be F

=8e

or -

K e

rr

Exer cise. De.dtLce lhe Gr·eek.<; of the forward contract.
Put. call parit.y relat.ion remains formally Lhe same: C - P - F; of course all t.he quantitie.•>
involved have to be computed by the formulae for Lhe dividend paying ca.c;e.

Exercise. Using put-call par'ity and the pr'evious re.<;tLlL'i, obtain the Greeks of the put option.

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