theta for options

gammaslide · May 7th, 2011, 4:02 pm

I know there are two ways of calculating theta, one assumes business day accrual and the other is calendar day something?I'm unsure if on a Monday my theta is usually for monday plus weekend (maybe two half-days)?What method is this and is there a common approach used my ir option desks for swaptions?And another point, say for payrolls can you make it worth 2 or 2.5 days, whatever you think is appropriate..WHats a good way to have this flexibility?thanks

rmax · May 9th, 2011, 11:49 am

Theta generally in my experience is recognised Monday for the weekend. Only in accrual businesses do you get the time effect recognised on the Friday.