A study on parameters of option pricing: The Greeks
Jerlin Jose, 2 Kanchan D
An option’s price can be prejudiced by various factors like underlying price, interest rates, volatility etc. The underlying price and strike price of the option determines the intrinsic value. The time till expiration and instability determines the probability of a profitable move. The interest rates determines the cost of money. Dividends can cause an adjustment to share price. These factors influence the traders, depending on the type of options positions they have established. In order to become an efficacious option trader, it is necessary to understand the factors that influence the price of an option. This study is conducted to provide some knowledge and application about the Greeks. Each Greek separates a variable that can drive option’s price movement, giving insight on how the option’s premium will vary if that variable changes.