Introduction

Option classes:

Digital: payoff is either something or nothing.
Knock-in: becomes digital if the barrier hit, else worthless.
Knock-out: digital that becomes worthless if the barrier hit.

Pricing variables:

"S" is the current asset price.
"X" is the strike price.
"H" is the barrier price (knock-in & knock-out options).
"dividend" is the dividend yield on the asset.
"interest" is the cash riskless interest rate.
"volatility" is the volatility of the asset.
"maturity" is the time left until expiration.

Measures:

"value":value of the option.
"delta S": option value sensitivity to changes in S.
"delta X": option value sensitivity to changes in X.
"delta dividend": option value sensitivity to dividends.
"delta rate": option value sensitivity to interest.
"delta vol": option value sensitivity to volatility.
"delta time": option value sensitivity to changes in time.
"gamma SS": delta S sensitivity to changes in S.
"gamma SX": delta X sensitivity to changes in S.
"gamma XX": delta X sensitivity to changes in X.

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Written by Dr. Robert Lum at robertl@intrepid.com