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The European Journal of Applied Economics

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Options, Greeks, and Risk Management

Jelena Paunović
Published Online: 2014-05-08 | DOI: https://doi.org/10.5937/sjas11-5820


Options are financial derivatives representing a contract which gives the right to the holder, but not the obligation, to buy or sell an underlying asset at a pre-defined strike price during a certain period of time. These derivative contracts can derive their value from almost any underlying asset or even another derivative: stock-options, options on bonds, swap options (options on swaps), weather options, real options and many others. Options have existed for a long period of time but they became widely popular after Fisher Black, Myron Scholes and Robert Merton developed a theoretical pricing model in 1973 known as the Black-Scholes model. Options became a standardized product traded on the Chicago board of options Exchange (CBOT) through the clearing house guarantees. Nowadays, options are both market and OTC (over the counter) traded and are mainly used for portfolio hedging and speculation. In this paper I am going to study market risk management from the perspective of options trader, and I will show how to describe the risk characteristics of plain vanilla European stock options contracts by going through the “Greeks” which are defined as quantities that represent option’s sensitivity to risk. Finally, I will construct portfolios that will eliminate these risks.


Opcije su finansijski derivati koji predstavljaju ugovor koji daje pravo vlasniku, ali ne i obavezu, da kupi ili proda odrefienu aktivu po ugovorenoj ceni izvršenja u toku odrefienog vremenskog perioda. Derivatni ugovori mogu da dobiju vrednost od skoro svake odrefiene aktive ili cak drugih derivata: postoje opcije na akcije, opcije na obveznice, opcije na svopove, vremenske opcije, prave opcije i mnoge druge. Opcije postoje duži vremenski period, ipak postaju popularne nakon što su Fisher Black, Myron Scholes and Robert Merton razvili teoretski cenovni model poznat kao Black-Scholes model.

Opcije postaju standardizovan produkt trgovine na Cikaškoj berzi opcija (CBOT) posredstvom garancije klirinske kuce. Danas, opcijama se trguje na berzama ili van-berzanski (OTC ) i one se uglavnom koriste za portfolio hedžing i spekulacije. U ovom naucnom radu akcenat je stavljen na tržišno upravljanje rizikom posmatrano iz ugla trgovaca opcijama, kao i na opis karakteristika rizika plain vanilla Evropskih opcionih ugovora putem “Greeks” kvantitativa, koji predstavljaju opcionu osetljivost na rizik. Na kraju rada konstruisan je portfolio koji ce ukloniti navedene rizike.

Keywords: financial derivatives; OTC market; hedging; risk; speculations; Black-Scholes model; Greeks

Ključne reči: finansijski derivati; OTC tržište; hedžing; rizik; spekulacije; Black-Scholes model; Greeks


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About the article

Received: 2014-03-31

Accepted: 2014-04-03

Published Online: 2014-05-08

Published in Print: 2014-04-01

Citation Information: Singidunum Journal of Applied Sciences, ISSN (Online) 2217-8783 , DOI: https://doi.org/10.5937/sjas11-5820.

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© by Jelena Paunović. This article is distributed under the terms of the Creative Commons Attribution Non-Commercial License, which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited. BY-NC-ND 3.0

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