Question #11
Reading: Reading 37 Measuring and Managing Market Risk
PDF File: Reading 37 Measuring and Managing Market Risk.pdf
Page: 5
Status: Correct
Correct Answer: A
Question
With regards to convexity and gamma, which of the following statements are most accurate?
Answer Choices:
A. Both are second order effects value arising from changes in underlying risk factors to the change in value of the asset
B. Convexity is a second order effect while gamma is a first order effect arising from changes in underlying risk factors to the change in value of the asset
C. Convexity is a first order effect while gamma is a second order effect arising from changes in underlying risk factors to the change in value of the asset
Explanation
Convexity is the second order effect of change in interest rate on bond prices while
gamma is the second order effect of change in stock price on option prices.