Sensitivity measures determine how portfolio performance changes with respect to changes in a single risk factor. The different types of sensitivity risk measures are:
Equity risk is measured by beta.
Beta: Sensitivity of the asset’s return to the market risk premium.
Interest rate risk of fixed-income securities is measured by duration and convexity.
Duration: Sensitivity of the bond’s price to changes in its yield.
Convexity: A second-order effect which measures changes in duration.
Option risk is measured by delta, gamma and vega.
Delta: Sensitivity of option price to the price of the underlying.
Gamma: A second-order effect which measures changes in delta.
Vega: Sensitivity of option price to its volatility