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A quanto option is a derivative with the underlying and strike price denominated in one currency, but the instrument itself is settled in another currency. This has consequences for the calculation of the greeks.

The BS delta measures the rate of change of the option price relative to the change of underlying price. BS gamma measures the rate of change of BS delta relative to the change of underlying price

A price-adjusted delta (PA delta) measures the rate of change of the option price (in settlement currency) relative to the percentage change of the underlying price. PA gamma measures the rate of change of PA delta relative to the percentage change of the underlying price

According to this link the difference between the PA delta and BS delta is the price of the option (in BTC). My interpretation (with interest rate=0, USD and BTC as currencies):

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Is it also possible to determine the difference between BS gamma and PA gamma?

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  • $\begingroup$ In the fourth line , don’t forget that $d_1$ depends on $S$ $\endgroup$
    – dm63
    Apr 30, 2020 at 9:30
  • $\begingroup$ agreed, but that's not relevant in the proof right? Do you know if we can express BS gamma in terms of PA gamma? $\endgroup$
    – HJA24
    Apr 30, 2020 at 10:13

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Note that \begin{align*} Call_{\rm BTC}=\frac{1}{S}Call_{\rm USD}. \end{align*} The premium adjusted delta $Delta_{PA}$ is defined as the change of $Call_{\rm BTC}$ with respect to the change of the spot in BTC, that is, \begin{align*} Delta_{PA} &= \lim_{\Delta S\rightarrow 0}\frac{\Delta Call_{\rm BTC}}{\frac{\Delta S}{S}}\\ &=\lim_{\Delta S\rightarrow 0}\frac{\Delta Call_{\rm USD}}{\Delta S} - \frac{1}{S}Call_{\rm USD}\\ &=Delta_{BS} - Call_{\rm BTC}. \end{align*} The premium adjusted gamma $Gamma_{PA}$ is defined as the change of $Delta_{PA}$ with respect to the change of the spot, that is, \begin{align*} Gamma_{PA} &= \lim_{\Delta S\rightarrow 0}\frac{\Delta Delta_{PA}}{\Delta S}\\ &=Gamma_{BS} +\frac{1}{S^2}Call_{\rm USD}-\frac{1}{S} \lim_{\Delta S\rightarrow 0}\frac{\Delta Call_{\rm USD}}{\Delta S}\\ &=Gamma_{BS} + \frac{1}{S}Call_{\rm BTC} -\frac{1}{S}Delta_{BS}\\ &=Gamma_{BS} - \frac{1}{S}Delta_{PA}. \end{align*} See also Page 19 of this paper; however, there are some typos there.

The purpose of such definitions are to maintain the units. For example, the delta is always in units of BTC, while the gamma is in units of $({\rm BTC} \times {\rm BTC})/{\rm USD}$.

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  • $\begingroup$ thank you. This helps a lot $\endgroup$
    – HJA24
    May 5, 2020 at 9:13
  • $\begingroup$ You are welcome. $\endgroup$
    – Gordon
    May 5, 2020 at 11:07

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