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Vanilla Greeks


Here I present a derivation of all vanilla call Greeks, and show how to obtain the put Greeks from put-call parity. Recall the Black-Scholes call price (with dividend rate \(d\)):

$$ C = e^{-dT} S \Phi(a_+) - e^{-rT} K \Phi(a_-), \quad \text{where} \quad a_{\pm} = \frac{\log(S/K) + (r - d \pm \sigma^2 /2) T}{\sigma \sqrt{T}}, $$

and where \( \Phi(x) = (2\pi)^{-1/2} \int_{-\infty}^x e^{-u^2/2} du \) is the cumulative normal function.

The put price is similar:

$$ P = e^{-rT} K \Phi(-a_-) - e^{-dT}S \Phi(-a_+). $$

Finally, recall the put-call parity: the prices of a call option \(C\), put option \(P\) and a forward contract\(F\), with the same expiry and strike, are related as follows:

$$ C - P = F, \quad \text{where} \quad F = e^{-dT} S - e^{-rT} K. $$

Call Delta: \( \Delta_C \equiv \partial C / \partial S \). Simply differentiate, noting that \(a_{\pm}\) have \(S\) dependence.

\begin{align*} \newcommand\pdv[2]{\frac{\partial#1}{\partial#2}} \Delta_C &= \pdv{}{S}\left[ e^{-dT}S \Phi(a_+) - e^{-rT} K \Phi(a_-) \right] \\ &= e^{-dT} \Phi(a_+) + e^{-dT} S \Phi'(a_+) \pdv{a_+}{S} - e^{-rT} K \Phi'(a_-) \pdv{a_-}{S} \\ &= e^{-dT} \Phi(a_+) + \frac{e^{-dT} e^{-a_+^2 / 2}}{\sigma\sqrt{2\pi T}} - \frac{K}{S} \frac{e^{-rT} e^{-a_-^2 / 2}}{\sigma\sqrt{2\pi T}}, \end{align*}

where we used \(\Phi'(x) = \displaystyle\frac{e^{-x^2/2}}{\sqrt{2\pi}}\) and \(\displaystyle\pdv{a_{\pm}}{S} = \frac{1}{S\sigma\sqrt{T}}\).

Put Delta: \(\Delta_P \equiv \partial P / \partial S\). Differentiating the put-call parity with respect to \(S\) yields:

$$ \pdv{C}{S} - \pdv{P}{S} = \pdv{F}{S} \quad \Rightarrow \quad \Delta_C - \Delta_P = e^{-dT} \quad \Leftrightarrow \quad \Delta_P = \Delta_C - e^{-dT}. $$

Call Gamma: \( \Gamma_C \equiv \partial^2 C / \partial S^2 = \partial \Delta_C / \partial S \). Again, simply differentiate the Delta:

\begin{align*} \Gamma_C &= \pdv{}{S} \left[e^{-dT} \Phi(a_+) + \frac{e^{-dT} e^{-a_+^2 / 2}}{\sigma\sqrt{2\pi T}} - \frac{K}{S} \frac{e^{-rT} e^{-a_-^2 / 2}}{\sigma\sqrt{2\pi T}}\right] \\ &= e^{-dT} \Phi'(a_+) \pdv{a_+}{S} + \frac{e^{-dT} e^{-a_+^2 / 2}}{\sigma\sqrt{2\pi T}} (-a_+) \pdv{a_+}{S} + \frac{K}{S^2} \frac{e^{-rT} e^{-a_-^2 / 2}}{\sigma\sqrt{2\pi T}} - \frac{K}{S} \frac{e^{-rT} e^{-a_-^2 / 2}}{\sigma\sqrt{2\pi T}} (-a_-) \pdv{a_-}{S} \\ &= \frac{1}{S\sigma\sqrt{2\pi T}} \left[ e^{-dT} e^{-a_+^2 / 2} - \frac{a_+ e^{-dT} e^{-a_+^2/2}}{\sigma\sqrt{T}} + \frac{K}{S} e^{-rT} e^{-a_-^2/2} + \frac{K}{S} \frac{a_- e^{-rT} e^{-a_-^2/2}}{\sigma\sqrt{T}} \right]. \end{align*}

Put Gamma: differentiating the put-call parity twice with respect to \(S\) yields \( \Gamma_P = \Gamma_C \).


Call Vega (Kappa): \(\kappa_C \equiv \partial C / \partial\sigma\). Let us define the pair:

$$ b_{\pm} \equiv \pdv{a_{\pm}}{\sigma} = -\frac{a_{\pm}}{\sigma} \pm \sqrt T. $$

Then, the call Vega (Kappa) is simply:

$$ \kappa_C = e^{-dT} S \Phi'(a_+) b_+ - e^{-rT} K \Phi'(a_-) b_-. $$

Put Vega (Kappa): differentiating the put-call parity with respect to volatility yields

$$ \pdv{C}{\sigma} - \pdv{P}{\sigma} = \pdv{F}{\sigma} = 0 \quad \Rightarrow \quad \kappa_P = \kappa_C. $$

Call Rho: \(\rho_C \equiv \partial C / \partial r.\)

\begin{align*} \rho_C &= e^{-dT} S \Phi'(a_+) \pdv{a_+}{r} + T e^{-rT} K \Phi(a_-) - e^{-rT} K \Phi'(a_-) \pdv{a_-}{r} \\ &= \frac{\sqrt{T}}{\sigma} \left[ e^{-dT} S \Phi'(a_+) - e^{-rT} K \Phi'(a_-) \right] + T e^{-rT} K \Phi(a_-). \end{align*}

Put Rho: differentiate the put-call parity with respect to \(r\):

$$ \pdv{C}{r} - \pdv{P}{r} = \pdv{F}{r} = T e^{-rT} K \quad \Rightarrow \quad \rho_P = \rho_C - T e^{-rT} K. $$

Call Theta: this is the time derivative of the call price, which is equivalent to minus the expiry derivative, \(\theta_C \equiv - \partial C / \partial T\). Let us define the pair

$$ c_\pm \equiv \pdv{a_\pm}{T} = -\frac{1}{2} \frac{\log S/K}{\sigma T^{3/2}} + \frac{1}{2} \frac{(r-d\pm \sigma^2/2)}{\sigma\sqrt{T}}. $$

Then,

$$ \theta_C = de^{-dT}S\Phi(a_+) - re^{-rT}K\Phi(a_-) - e^{-dT}S\Phi'(a_+) c_+ + e^{-rT} K \Phi'(a_-) c_-. $$

Put Theta: \(\theta_P \equiv -\partial P / \partial T\).

$$ \pdv{C}{T} - \pdv{P}{T} = \pdv{F}{T} = -de^{-dT}S + re^{-rT}K \quad \Rightarrow \quad \theta_P = \theta_C -de^{-dT}S + re^{-rT}K. $$