3
$\begingroup$

I am considering a product composed of 10 underlying assets. The maturity is 5 year. Each year if the performance of the equi-weighted portfolio reach a barrier, it pays a coupon.

My question concern the computation of the greeks. For example, is it true to compute delta as the sum of the delta of each underlying assets ? Same question for the gamma, vega, rho and theta.

Improve this question
$\endgroup$
2
  • $\begingroup$ Yes portfolio greeks are eaqul to sum of greeks of underlined. $\endgroup$
    – ash
    Commented Apr 15, 2013 at 8:34
  • 2
    $\begingroup$ what is your payoff function? $\endgroup$
    – Matt Wolf
    Commented Apr 15, 2013 at 8:54

1 Answer 1

Reset to default
3
$\begingroup$

Freddy has already answered it and my answer had an assumption in it so clarifying -

If payoff of basket with underlined securities A,B and C are $$ P_b = C_1*P_A + C_2*P_B + C_3*P_C $$ Where $$C_1 , C_2 ,C_3 $$ are contants then portfolio delta is $$ \delta_b = C_1*\delta_a+C_2*\delta_b+C_3*\delta_c $$

In short as Freddy Said , and I assumed if the potfolio payoff is merely a sum of all underlined then yes the delta will be sum of deltas of underlined. If not and then you have to apply differentiation on the payoff fuction of basket

Improve this answer
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.