The Greeks: Delta, Gamma, Vega, and How Traders Manage Risk
Chapter 7 is one of the meatiest chapters in the first part of Wilmott’s book. It does two big things: first, it derives the actual Black-Scholes formulas for calls, puts, and binary options step by step. Second, it introduces the Greeks, which are the sensitivity measures that traders live and die by every single day. Wilmott makes an interesting argument early on: getting the hedging right is more important than getting the price right. Let me explain why.