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2013 X3.2ii

S

sesamy5

Member
Hi,
This question looks at working out the change in an option price over a small period of time given the values of the Greeks and some starting parameters.

I am confused by the solution which gives that the change caused by gamma is
1/2 * gamma * dS^2
where has the factor of 1/2 come from?

I guess it's to with it being a 2nd derivative, but I don't see how this was arrived at. Would ^(1/2) also be valid?

Does anyone know?
Thanks
 
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