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Understanding Forex Option Gamma Above Deal Notional

Article Quant Q&A · Author: user76029
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Summary

The document raises a question about gamma for a short INR/JPY put option and lists the trade’s notionals, strike, spot, maturity, volatility, and interest rates. It reports a delta of 0.56 and gamma of -2.26, then asks why gamma could exceed one or the deal notional and how it is calculated. The figures describe the example but do not specify the pricing model, quote convention for the Greeks, or the units used for gamma.

No answer or derivation is included, so the document does not explain whether the reported magnitude is meaningful under a particular currency or notional convention. It is useful as a prompt to examine how option gamma is defined, scaled, and reported, especially for FX contracts with two currency notionals. Readers should treat the numerical values as the questioner’s reported outputs, not as independently verified results or a general rule about FX option gamma.

Key ideas

  • The example concerns a short INR/JPY put option with two currency notionals.
  • The question reports delta of 0.56 and gamma of -2.26.
  • The document asks how gamma is derived and compared with deal notional.
  • It gives no answer, model specification, or unit convention for interpreting the reported gamma.

Tags

ForexOptionsDerivatives pricing
Full text
# How Forex option Gamma can be more than 1


# How Forex option Gamma can be more than 1












Problem statement: How forex option Gamma can be more than 1 (more than deal notional)? FX option details as below INRJPY FX Option deal (PUT Option and Sell DEAL)

INR Notional=100

JPY Notional=161.29

Strike price 1.6129

Spot price 1.7092

Maturity 1 year

volatility =10%

interest rate INR =6.35% and interest rate JPY = -0.019%

Greeks I am getting Delta =0.56

Gamma =-2.26

Requesting to clarify why Gamma is more than 1 and more than Notional? If more than 1 then How it is derived?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.