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The Black-Scholes Model: Differentiating Gamma

From Theory To Practice

Our Black-Scholes Model mini-series marches on today! As we continue to make our way through all of the Greeks, we find ourselves face-to-face with gamma today. While gamma measures the rate of change of delta (and can help us better understand how the directional risk in our positions changes over time), today we dive into the math behind its being the second derivative of the BSM with respect to price. Frank, from Frankly Trading, joins the discussion today, and he offers up some tremendous insight regarding gamma’s connection to probabilities.

You can watch every part of the Black-Scholes series below:

Part One: Pricing a Call

Part Two: Pricing a Put

Part Three: Probability Density Functions: Part One

Part Four: Probability Density Functions: Part Two

Part Five: Standard Normal Variables

Part Six: Z-Scores

Part Seven: Differentiating Delta

Part Eight: Differentiating Theta

Part None: Differentiating Vega

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