Forums > Basics > Greeks in dollars versus Greeks in percentage

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 pj Total Posts: 3453 Joined: Jun 2004
 Posted: 2019-03-05 13:50 Hi, There is a structurer asking me to convert the Greeks (delta, gamma, theta) into percentage formatand refusing to explain what does that mean.Googling and books didn't help.Moreover the provided example numbers for deltaare positive in classical (as he terms them dollar)and negative in percentage term. Therefore dividing thedelta by the notional is out.So what is he talking about? The older I grow, the more I distrust the familiar doctrine that age brings wisdom Henry L. Mencken
 Maggette Total Posts: 1130 Joined: Jun 2007
 Posted: 2019-03-05 14:11 Could you post the example he send you?Embarrassing, but just rule out the stupid stuff:If you have a Delta 0.5....he doesn't expect you to send 50? Like in 50%? Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...
 pj Total Posts: 3453 Joined: Jun 2004
 Posted: 2019-03-05 14:29 Don't think it will be of any help,but here there are the numbers.PV -1,268,596.63DELTA 1,749.50DELTA_PERCENTAGE -0.222667258GAMMA -11.2967495VEGA -19,426,472.30THETA 1,369.59RHO 23,370,269.94> If you have a Delta 0.5....he doesn't expect you to send 50? Like in 50%? Sigh, there is a sign change, and the delta/delta_percentage makesno sense to me. I have repeatedly asked for the definition. The older I grow, the more I distrust the familiar doctrine that age brings wisdom Henry L. Mencken
 Maggette Total Posts: 1130 Joined: Jun 2007
 Posted: 2019-03-05 14:44 Sorry, makes no sense to me either.Last shot in the dark...change in delta from time t_k-1 to time t_k?Edit: so basically not solveablewith the information in the example?Sorry, No idea. Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...
 ronin Total Posts: 457 Joined: May 2006
 Posted: 2019-03-05 14:48 It would be percentage of notional. The number in the termsheet.Delta percentage could mean 0.22 basis points (modulo sign), in which case it is ~ 78 mln in notional. So 23 million rho and 20 million vega can make sense, depending on the maturity. Is this like a 30y trade?But seriously, who hedges the delta to the fraction of a basis point and lets vega and rho run to tens of millions? "There is a SIX am?" -- Arthur
 pj Total Posts: 3453 Joined: Jun 2004
 Posted: 2019-03-05 14:48 > Sorry, No idea. you feel my pain< EDIT > It is an equity barrier. The older I grow, the more I distrust the familiar doctrine that age brings wisdom Henry L. Mencken
 deeds Total Posts: 432 Joined: Dec 2008
 Posted: 2019-03-05 15:26 Perhaps something from Haug, e.g. p 56, VegaP, GammaP as percentage change?
 pj Total Posts: 3453 Joined: Jun 2004
 Posted: 2019-03-05 15:42 It may be the notional (it may be negative)...Proposed that.Waiting him to respond. The older I grow, the more I distrust the familiar doctrine that age brings wisdom Henry L. Mencken
 ronin Total Posts: 457 Joined: May 2006
 Posted: 2019-03-05 22:50 @pj,Something I learned in my second month on an exotics desk (a long time ago).Always, always make people email you their questions and requests.Just the simple act of organising their thoughts enough to put them in an email eliminates 99% of stupid requests. And the last 1% is much less stupid. "There is a SIX am?" -- Arthur
 chiral3 Founding Member Total Posts: 5084 Joined: Mar 2004
 Posted: 2019-03-06 03:36 +1 for ronin.All I can think of is he may have a term sheet from an institutional client with \$delta, .... i.e., \$ change given, say, a 1% change in underlying; so %delta ~= \$delta*100/S0. Nonius is Satoshi Nakamoto. 物の哀れ
 Strange Total Posts: 1557 Joined: Jun 2004
 Posted: 2019-03-06 03:48 For an equity barrier, it makes sense that people want to see premium/delta/gamma/vega etc in percent of notional. It's a standard way of thinking about it. Just take whatever dollar greeks you got and divide them by the notional. PS. some of the greeks conventions are confusing and that's where traders and quants frequently differ - most common are gamma (lots of people like to see change of delta per 1 percent move) and vega (again, it's more convenient to think in terms of pnl per IV change by 1 vol). Eher Ende mit Schrecken als Schrecken ohne Ende
 pj Total Posts: 3453 Joined: Jun 2004
 Posted: 2019-03-06 10:10 > Always, always make people email you their questions and requests.The most important thing and I have learned it the hard way. @Strange> it makes sense that people want to see premium/delta/gamma/vega etc in percent of notional.I apologize for a stupid question. But why? Why does it make sense normalizing the Greeks this way? The older I grow, the more I distrust the familiar doctrine that age brings wisdom Henry L. Mencken
 ronin Total Posts: 457 Joined: May 2006
 Posted: 2019-03-06 10:45 > I have learned it the heard way. We all did... > Why does it make sense normalizing the Greeks this way? The buyer is looking at the entire structured note. He put up say 78 million, and he is thinking "what's my 78 million returning if the underlying goes up 1%"? So 50 delta has a clear meaning to him- it means he is making 0.5% for each 1% move in the underlying.The trading desk is using the same language to minimise the operational risk of always having to translate back and forth when communicating with the client. "There is a SIX am?" -- Arthur
 Strange Total Posts: 1557 Joined: Jun 2004
 Posted: 2019-03-06 16:41 > Why does it make sense normalizing the Greeks this way?Primarily because people want to compare apples to apples. In this case, if I live in a "notional-expressed" world where the premiums and strikes are expressed in percent, it makes sense to see the risk parameters in the same terms. E.g. I'd think something like * I am paying 125 bps for this Jun 100%/85% barrier* It has delta of -10% and gamma of -5%* So if the market moves down 5%, I'll make ~10 bps (in reality, it's closer to zero)* Why the f*ck would I buy this sh*t? Eher Ende mit Schrecken als Schrecken ohne Ende
 pj Total Posts: 3453 Joined: Jun 2004
 Posted: 2019-03-06 17:22 Thank you very much!>* Why the f*ck would I buy this sh*t?Last q, would you sell it? The older I grow, the more I distrust the familiar doctrine that age brings wisdom Henry L. Mencken
 Strange Total Posts: 1557 Joined: Jun 2004
 Posted: 2019-03-06 18:24 I was giving a hypothetical example. For choice, personally I'd be a buyer, not a seller - especially given how skew has richened up. Eher Ende mit Schrecken als Schrecken ohne Ende
 ronin Total Posts: 457 Joined: May 2006
 Posted: 2019-03-06 22:26 > Last q, would you sell it?Depends on the margin, of course... "There is a SIX am?" -- Arthur
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