DEFINITION
An equation for determining the fair market value of a Europeanstyle option when the price movement on the underlying asset does not resemble a normal distribution. The gamma pricing model is intended to price options where the underlying asset has a distribution that is either longtailed or skewed, where dramatic market moves occur with greater frequency than would be predicted by a normal distribution of returns.INVESTOPEDIA EXPLAINS
While the BlackScholes option pricing model is the best known, it does not provide accurate pricing results under all situations. In particular, the BlackScholes model assumes that the underlying instrument has returns that are normally distributed. As a result, the BlackScholes will misprice options on instruments that do not trade based on a normal distribution. Many alternative options pricing methods have been developed with the goal of providing more accurate pricing for realworld applications such as the Gamma Pricing Model. Generally speaking, the Gamma Pricing Model measures the gamma, which is how much fast the delta changes with respect to small changes in the underlying asset's price.RELATED TERMS

Trinomial Option Pricing Model
An option pricing model incorporating three possible values that an underlying ... 
Gamma
The rate of change for delta with respect to the underlying asset's price. Gamma ... 
Binomial Option Pricing Model
An options valuation method developed by Cox, et al, in 1979. The binomial option ... 
Black Scholes Model
A model of price variation over time of financial instruments such as stocks ... 
Greeks
Dimensions of risk involved in taking a position in an option (or other derivative). ... 
Vega
The measurement of an option's sensitivity to changes in the volatility of the ... 
Option
A financial derivative that represents a contract sold by one party (option ... 
Theta
A measure of the rate of decline in the value of an option due to the passage ... 
Delta
The ratio comparing the change in the price of the underlying asset to the corresponding ... 
Option Pricing Theory
Any model or theorybased approach for calculating the fair value of an option. ...
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