gamma adjustment across different maturities

mensatrader

Active member
183 0
Hi, is it true that gamma needs to be adjusted for options with different maturities? For example, if the volatility of a 6-month option A has twice as high as a 3 month option B's volatility, then the Gamma of A should be adjusted by mutiplying 2 with the black-scholes calulated Gamma of A? why?

many thanks
 

Shakone

Senior member
2,458 665
Hi, is it true that gamma needs to be adjusted for options with different maturities? For example, if the volatility of a 6-month option A has twice as high as a 3 month option B's volatility, then the Gamma of A should be adjusted by mutiplying 2 with the black-scholes calulated Gamma of A? why?

many thanks

Not sure I've understood the question, but the formula for the gamma depends on time to maturity and the vol (among other things). Adjusting the vol for different times is not a linear adjustment, you need the square root with respect to time.
 
Last edited:

mensatrader

Active member
183 0
Not sure I've understood the question, but the formula for the gamma depends on time to maturity and the vol (among other things). Adjusting the vol for different times is not a linear adjustment, you need the square root with respect to time.

thanks mate! it's not adjusting vol, but adjusting gamma based on different vol of different maturities
 

Blister

Newbie
7 0
Haven't you answered your own question? It is a certainty the gamma will be different among different expires. But I would model the differences and see if it is worth the bother of netting out multiple gammas.

Hi, is it true that gamma needs to be adjusted for options with different maturities? For example, if the volatility of a 6-month option A has twice as high as a 3 month option B's volatility, then the Gamma of A should be adjusted by mutiplying 2 with the black-scholes calulated Gamma of A? why?

many thanks
 

mensatrader

Active member
183 0
Haven't you answered your own question? It is a certainty the gamma will be different among different expires. But I would model the differences and see if it is worth the bother of netting out multiple gammas.
thanks mate. i think that's where shadow gamma comes from.
 
 
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