Gap Risk

From Open Risk Manual

Definition

Gap risk is the risk of a significant change in the vega parameters in options despite only a small change in the price of the underlying instrument.[1]

Gap risk results in "hedge slippage". Relevant instruments subject to gap risk include all path dependent options, such as barrier options, and Asian options, as well as all digital options

References

  1. Minimum capital requirements for market risk, BCBS D352