The dollar sensitivity of the price of a derivative to a fractional change in the price of the underlying. It is relative in the sense that it relates a fractional change in the value of the underlying to the dollar change in the value of the derivative. For example, if the value (price) of the underlying stock has increased by 10 currency units (dollar change) while the price of the respective derivative contract has moved up by 2 currency unit, then for this derivative, relative delta (for 0.2 of the change in the value of the underlying stock) is:
Relative delta = $Δ in derivative’s value/ fractional $Δ underlying’s value
Relative delta = 2/ (o.2 ×10) = 1
This means that for every 0.2 dollar change in the price of the underlying stock, the value of the derivative changes by 1 dollar.
The above example involves unit-based (i.e., it captures the change per unit of value, rather than per contract).
