Gamma

Gamma & Rebalancing

Larger gamma means a delta hedge needs more rebalancing.

highlighted = computed this step

Gamma and rebalancing

Gamma measures how fast the hedge ratio moves. Larger gamma means delta shifts more between steps, so a delta hedge needs more frequent rebalancing to stay riskless. Delta is the first-order hedge; gamma is the curvature it leaves behind.

large Γ⇒ more rebalancing\text{large }\Gamma\Rightarrow\text{ more rebalancing}

Model note

This links the exact binomial gamma to hedging effort under the stated frictionless model. This is descriptive, not investment advice.

stated frictionless model\text{stated frictionless model}