New answers tagged theta
2
The relationship between theta and gamma is the Black-Scholes PDE.
Let's take normal B-S dynamics with $r=0$:
$dS_t = \sigma S_t dW_t$
The pricing PDE for a derivative $g(S_T)$ is (with terminal condition $g$):
$\frac{dp}{dt} = \frac{1}{2}\sigma^2S^2 \frac{d^2p}{dS^2}$
Or
$\Theta = \frac{1}{2}\sigma^2S^2 \Gamma$
This PDE has a solution (Feynman-Kac Theorem): ...
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