Answer: Gamma.

## Explanation In derivatives pricing and risk management, risks are categorized into: ### First-Order Risks: - **Delta**: Measures the sensitivity of the option price to changes in the underlying asset price (first derivative with respect to price) - **Vega**: Measures sensitivity to changes in volatility (first derivative with respect to volatility) - **Theta**: Measures sensitivity to time decay (first derivative with respect to time) - **Rho**: Measures sensitivity to interest rate changes (first derivative with respect to interest rates) ### Second-Order Risks: - **Gamma**: Measures the rate of change of delta with respect to changes in the underlying asset price (second derivative with respect to price) - **Vanna**: Measures sensitivity of delta to changes in volatility - **Volga/Vomma**: Measures sensitivity of vega to changes in volatility - **Charm**: Measures sensitivity of delta to time decay **Why Gamma is a second-order risk:** - Gamma = ∂²V/∂S² (second partial derivative of option value with respect to underlying price) - It measures the curvature or convexity of the option's price curve - Gamma risk becomes important for large price movements and for delta-hedged portfolios **Why the other options are incorrect:** - **Vega (A)**: First-order risk - sensitivity to volatility changes - **Delta (B)**: First-order risk - sensitivity to price changes Gamma is the correct answer as it represents a second-order risk that captures non-linear effects in option pricing.

Author: LeetQuiz .