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Using Options on Greeks as Liquidity Protection

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  • David Bakstein
  • Sam Howison

Abstract

In this paper we suggest derivative contracts related to the Greeks of options; we show how to value them and how they can be used to manage the risk of a portfolio of derivatives. We further describe certain types of these options, namely those related to the Delta and Gamma, which can be regarded as a form of insurance against liquidity holes and transaction costs for the writer of the contract representing the underlying.

Suggested Citation

  • David Bakstein & Sam Howison, 2003. "Using Options on Greeks as Liquidity Protection," OFRC Working Papers Series 2003mf03, Oxford Financial Research Centre.
  • Handle: RePEc:sbs:wpsefe:2003mf03
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    File URL: http://www.finance.ox.ac.uk/file_links/finecon_papers/2003mf03.pdf
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