Hi David,
I have a basic question, how does one calculate the DV01 of an option given the value of rho? The second part of the question is calculation of the greeks requires calculation of normal distribution of either d1 or d2 or both so is the calculation of any the greeks testable in the exam?
Ravi

Hi Ravi,

DV01 = rho/100

Since rho is the dollar change per 100 basis point change in rate (It is tempting to think rho*price/100, but this is not the case for rho as rho is already given in units. You can see this by pricing an option, and watching the rho scale directly with higher face value)

re: calc of Greeks, frankly, I think the probability of testability of the calcs is low but not zero. To get around your point, they only need to provide a snippet of a lookup table. Or, I have always said a clever question could get d1 to -1.65 or -2.33 because those you’d know; but i don’t think it has ever been asked this way. For these Greeks, it is much more likely to be a conceptual question; e.g., the delta of an ATM option is nearest to which of the following? (that’s an actual sample question)

the reality is that memorizing theta, gamma, and vega in particular is tough, and i would be surprised to see raw calcs of these three (for this reason, personally, i’d focus on delta and rho or even just delta, frankly); few people could do those calcs raw. As more evidence, last year each Greek had its own AIM and this year they are collapsed mostly into one.

Going further, the raw calcs of the Greeks I’d say are less important than:

* Explain how to implement and maintain a gamma neutral position  
* Define, discuss and compute the relationship between delta, theta, and gamma

it is a long way of saying: i basically agree with you, as a practical matter, i’d spend less time memorizing the raw Greeks and instead focus on these relationship between Greeks (and the conceptual understanding, of course) so that you can handle questions that give you Greeks as inputs.

David