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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.

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  • $\begingroup$ Yes portfolio greeks are eaqul to sum of greeks of underlined. $\endgroup$ – ash Apr 15 '13 at 8:34
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    $\begingroup$ what is your payoff function? $\endgroup$ – Matt Apr 15 '13 at 8:54
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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

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