, Gamma measures the change in delta
for a small change in the price of the underlying
Mathematically, gamma can be considered to the be second derivative
of the function pricing the underlying instrument.
Gamma is of interest since it is a measurement of how quickly delta
changes. If a trader delta hedges
her portfolio, gamma will measure how often she will have to rehedge
, or rebalance her portfolio in order to stay hedged.
In economic terms, delta
is the cost of hedging, while gamma
is the cost of staying