Derivative Risk

Overview

Derivative risk is often taught from the perspective of the market maker, i.e. a trader who sells a derivative and wishes to hedge the position and to derive an appropriate price.

On the other side is another trader, who is trading the option as a single position, hedging some other position, or including it in a larger portfolio, in an attempt to obtain alpha.

• Hedging and Greeks - discusses the risk associated with a single derivative instrument, and models used to hedge that risk
• Portfolio Risk - details how the risk from a portfolio of derivatives can be comuted.