Dark Energy Consulting
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Detailed Glossary
Detailed Glossary
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Gamma | ||
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Gamma is one of the market risk Greeks It measures the sensitivity of the Delta to an underlier or market value It is of use when the value of the Delta itself varies with the value of the underlier - the Delta being the ratio of the value of the trade or portfolio to the value of an underlier or market value Detail A Physical Forward has a delta of approximately one with respect to the physical underlier, that is the value of a trade increases by 1% for every 1% increase in the underlier By contrast an Option may have a delta of anywhere between -1 and +1, and the delta is not constant At an underlier price of $20/tonne an Option might have a delta of 0.1, but at $40/tonne the delta might be 0.5 Trades with deltas that are constant are called linear (if we were to plot a graph of value against underlier it would be a straight line, the slope is the delta) Trades with deltas that change with the value of an underlier are called non-linear (if we were to plot a graph of value against underlier it would be not be straight - the gamma is the measure of curvature of the plot at a particular point on the graph) As an analogy think of delta as speed, it is the ratio of distance to time. Gamma is acceleration, just knowing the speed of an object doesn't tell us whether it is braking hard, accelerating, or at uniform speed - for that we need the acceleration Because gamma is the change in delta per unit change of price per unit volume of commodity and delta is dimensionless then Gamma has units of 1 / (Price/Volume) = Volume/Price, e.g. Therms/$ Some ETRMs use the term Gamma for the change in Exposure per unit change of price per unit volume of commodity and get Volume / (Price/Volume) = Volume2/Price e.g. MWh2/€ | ||
General Ledger | ||
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A record of all financial transactions made by the company Detail Usually represented by computer software the general ledger is a record of all transactions made by the company In the trading context transactions occur when any event occurs that may cause a transaction:
Transactions are represented, in double entry book keeping, as debits on one or more accounts and credits on one or more account - the debits always matching the credits for a specific transaction Being able to assign p&l and cash flow events to general ledger accounts is a critical part of any end to end trading system
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Give Up | ||
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A give up is an OTC trade - usually a forward - given up to an Exchange for clearing Detail A give up may start life as an OTC bilateral trade which, by mutual agreement, is given up to an Exchange to take advantage of clearing The give up may also be: a brokered OTC Forward that is mutually given up for clearing traded as an Exchange Derivative on a Broker platform, and automatically be given up for clearing Giving up an OTC trade for clearing combines the flexibility of trading bilaterally or through a broker, with the risk-free credit benefits of cleared trades | ||
Greek | ||
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The Greeks are a set of Market Risk measures, using Greek (or Greek-like) letters to measure sensitivities of a trade or portfolio to the set of factors that affect the value of the trade or portfolio Detail For more detail see the individual glossary entries for: If you remember your Greek from school you'll already have spotted that Vega is not a Greek letter at all, just a word beginning with "V" that sounds faintly like a Greek letter | ||