Greeks
Local sensitivities that translate model parameters into hedge language.
Name the object before manipulating it.
Greeks are slopes and curvatures: how the option changes for a small controlled move.
Local sensitivities that translate model parameters into hedge language.
State the governing relationship.
Notation and units
Decimal rates and volatilities, year-fraction time and continuous compounding unless stated otherwise.
Draw the boundary of the claim.
Definitions, units and information sets are fixed before the mathematical relationship is applied.
Rates and volatilities use decimal units and time uses year fractions unless stated otherwise.
The relationship is local to its stated assumptions and should not be extrapolated mechanically.
“An unstated convention is a future reconciliation break.”— THEQUANTBATEMAN
Connect the definition to an observable.
Hedge sizing, scenario interpretation and P&L attribution.
Translate the concept into a risk question.
State the convention, identify the observable and ask which EQ risk remains after the proposed hedge.
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