Friday, 11 September 2015

Technical Parameters of Warrants: Vega, Gamma and Rho


Vega measures the rate of change in the warrant price for each point of movement of its implied volatility.

No matter it is a call warrant or a put warrant, vega is always positive, indicating that the warrant price and its implied volatility always move in the same direction.

Vega can be an absolute value or a percentage relative to the warrant price.


Gamma measures the sensitivity of the delta of a warrant to the price movements of its underlying.

The higher the gamma, the bigger the change in delta will be in reaction to a movement in the underlying price.

Gamma = Rate of Change of Delta / Rate of Change of Underlying Price

No matter it is a call warrant or put warrant, gamma is always positive.


Rho measures the sensitivity of warrant price to changes in the market interest rate.

Call warrants have a positive rho, meaning that the price of a call warrant moves in the same direction as the market interest rate.

In contrast, put warrants have a negative rho, and this shows that the price of a put warrant moves in the opposite direction to the market interest rate.

Given that changes in interest rates tend to be limited in the short term, their effect on warrant prices is minimal.

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