Up-Gamma, Down-Gamma

alex101 · September 13th, 2007, 10:53 am

Hi All I just got introduced to the Shadow Gamma through the Taleb. I get the shadow gamma as a gamma that would incorporate the change in volatility resulting from the changes in the underlying price. However, i didn't get at all the story about the up and down gamma (what it is and how does he claculates them). Can someone help me with this?ThanksAlex

acastaldo · September 14th, 2007, 12:00 am

I didn't know that the "Dynamic Hedging" book is now referred as "the taleb" :-)The up and down gamma are explained on pages 134 and 135.The up gamma is the change in delta if S is increased by a finite amountThe down gamma is the change in delta if S is decreased by a finite amountthe usual gamma of course is for an infinitesimal change in S and is the same up or down.

alex101 · September 14th, 2007, 7:25 am

Thanks for that! "Taleb" is the bible i was told to read really good book even though its quite messy. Can't beleive some people are still trading without knowing that stuff!!

GammaSkimmer · September 14th, 2007, 4:17 pm

"Can't beleive some people are still trading without knowing that stuff!!"This is because its not all that important. In Nassim's great tradition, he is more of a philosopher than a trader. Still, an interesting read.

valmont · September 14th, 2007, 6:57 pm

I don't think the concept of "Shadow Gamma" is particularly unique. Traders have been adjusting their gammas to reflect the changes in volatility for years. "The Taleb" may have coined the term, but it's a relatively common practice. If you didn't do this, your gamma hedges/scalps would quickly lose their correlation to your overall position.