Delta, Theta. Gamma, Vega, and Rho have complicated (hard to memorize) formulas (Black-Scholes-Merton formulas)… do we have to know these formulas for the exam?
Thanks in advance
Vega’s not a Greek letter.
um… yeah, i was in a frat, i can recite the damn greek alphabet both ways. What the hell is Vega? He was a badass with the claws in Street Fighter.
Realistically though… is BSM model going to be a big part of the exam and what should we focus on?
Ok vega is not a greek letter, but I still have the same question… should we use brain power on learning the BSM model?
I have no idea about the FRM exam; on the CFA exam you need to know how the Greeks affect the value of an option, but you don’t have to know the form of the BSM model, nor be able to calculate option values using it.
The FRM exams go deeper on option Greeks than the CFA exams. My experience was not on calculating a Greek, per se, it was more along the lines of knowing all the components in each formula helped to answer a question that didn’t involve calculations, if I remember correctly. But that can be different in each exam.
I always try to make words or sentences out of complex formulae, then fill in the blanks later on signage. The letters don’t need to be accurate for your memory to work. For instance, a lower-case sigma can easily be an “o” or a delta sign can be an “A” if necessary. Go through these long formulas and see if you don’t find words or phrases – even if they are ridiculous. Don’t worry about the signs. Your mind will fill in the blanks over time. Just get the shapes of the component variables stuck in your mind.
As a dumb example, the denominator in gamma, to me, looks like the word “soot” if you include that the time zero subscript acts like an “o.” Then your mind fills in the blank over time on the square root symbol around “T.” Now in other cases, you may actually use the square root symbol as a “v” sound, if it makes an easier-to-remember word.
The words or phrases can be stupid. You have nobody to impress – whatever it takes to remember the formula.
Thanks for the help my friends
Once upon a time in a land far far away, there were option traders that called it Kappa instead of Vega.
I wish that they’d been the ones to win the war.
My pleasure.
I don’t think there will be any question on the exam which will be requiring all the inputs mentioned above in the Black Scholes Model . May be the question will be asked in parts .
Former Trader, I see your game of swooping in and taking credit, and I have to say…I generally approve of the tactic.
