Formula for gamma change wrt time?

T

TskTsk

Im curious if anyone has any formula / paper / etc. that shows how gamma changes with time? I'm trying to run some simple simulations. Say I have 10 options with 0.03 gamma. How will that gamma look in 10 days from now? It will have increased, but how much?
 
Quote from newwurldmn:

WRONG.
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Please help, I looked at the Wikipedia article for "Greeks (finance)", but the formula for Color (gamma decay) doesnt make sense to me. It looks like this :
2120a71f98649ec3cccebdd195bb30a6.png


Anyone care to explain the formula a bit would be much appreciated.

Quote from newwurldmn:

why not just remodel the option with a new time to expiry?
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EDIT: Just saw this post, yes that is probably the best idea. Only problem is I can only remodel things down to day by day, I need to know spesifically how gamma changes from minute to minute, this is especially important the last couple hours on friday.
 
Quote from Martinghoul:

Firstly, I would recommend you get this book:
http://www.amazon.com/Complete-Guide-Option-Pricing-Formulas/dp/0071389970

Secondly, if you scroll down in the very same Wikipedia article, you will see the actual formula you're looking for (rather than the definition as a partial derivative, which is what you have above).
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Ah yes I see it now:
eb71e6f3c3bcab2dd5ebd5a0d5f0118a.png


Only problem is I neither have a financial or mathematical background. Could anyone perhaps give me an example of its use? Also, can it give me predictions of intraday changes in gamma? (which is what I need)
 
Quote from TskTsk:

Im curious if anyone has any formula / paper / etc. that shows how gamma changes with time? I'm trying to run some simple simulations. Say I have 10 options with 0.03 gamma. How will that gamma look in 10 days from now? It will have increased, but how much?
More...

A simplified version of the formula, good for "in your head" or back of the envelope calcs is:

-(1-d1*d2)*n(d1)/(2*S*vol)

This assumes zero interest rate, zero dividends, and vol is time adjusted (vol = annualized_vol * sqrt(time)).

The full formula is available in most options texts. However the above is a pretty good approximation for stocks that do not pay dividends.

Edit: for a slightly better approximation substitute the forward price for S
 
Quote from Kevin Schmit:

A simplified version of the formula, good for "in your head" or back of the envelope calcs is:

-(1-d1*d2)*n(d1)/(2*S*vol)

This assumes zero interest rate, zero dividends, and vol is time adjusted (vol = annualized_vol * sqrt(time)).

The full formula is available in most options texts. However the above is a pretty good approximation for stocks that do not pay dividends.

Edit: for a slightly better approximation substitute the forward price for S
More...

Nice, thanks for this

In the formula above, is time option life as percentage of year?
Also is there any spreadsheet or something that will calculate d1, d2, n(d1) and n(d2) for me?
Apologize if this sounds stupid but I have never touched on any of this before.
 
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