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Derivatives

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  • February 4, 2021
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Modified Alpha

A risk measure for options which is computed by relating an option’s modified theta to its gamma:

Modified alpha = modified theta/ gamma

This modified version of alpha uses modified decay (modified theta) as a measure of an option’s time decay, rather than analytical theta. Modified alpha provides a more sophisticated alternative to simple alpha as it takes into consideration the rate of change in the rate of decay.


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