Should we adjust greeks on stock splits? Let's just ask about splits instead of reverse splits. I'm also interested how answers change if we change models/assumptions.
I have some contradicting thoughts:
- We should not adjust, because market conditions are the same i.e. market cap stays the same, and we assume traders still act the same.
- Volatility increases which will affect greeks (at least the higher order derivatives taken w.r.t volatility). I think volatility increases because newer traders enter at the lower price point.
As I wrote this, I realized this may be a hidden "implied vs historical volatility" question, but I'm still interested in answers. Thanks!