sort of dumb question. I understand well the relationship between Gamma/Theta pnl for options on single underliers. I'm (attempting) to move onward and upward to options on baskets.

Conceptually, I have a decent grasp of Cross Gamma but I'm getting stuck trying to compute the cross gamma pnl. Would someone be able to help me out with a similar formula to that of the single underlier Gamma PnL?

Standard Gamma PnL formula: 0.5 * Gamma * (Change in underlier^2)

Thanksin advance!

  • 1
    $\begingroup$ In all brevety: The canonical PnL expansion is 'simply' the application of the multivariate Taylor series expansion. Thence, cross gamma is computed as $\frac{\partial^2 f(x,y)}{\partial x \partial y}\mathrm{d}x\mathrm{d}y$ $\endgroup$ Apr 22 at 6:25


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