Publication
Title
Efficient computation of option price sensitivities for options of American style
Author
Abstract
No front-office software can survive without providing derivatives of option prices with respect to underlying market or model parameters, the so called Greeks. If a closed form solution for an option exists, Greeks can be computed analytically and they are numerically stable. However, for American style options, there is no closed-form solution. The price is computed by binomial trees, finite difference methods or an analytic approximation. Taking derivatives of these prices leads to instable numerics or misleading results, specially for Greeks of higher order. We compare the computation of the Greeks in various pricing methods and conclude with the recommendation to use Leisen-Reimer trees.
Language
English
Source (journal)
Wilmott
Publication
2004
ISSN
1540-6962
Volume/pages
(2004), p. 72-81
Full text (publisher's version - intranet only)
UAntwerpen
Faculty/Department
Publication type
Subject
External links
Record
Identification
Creation 03.03.2015
Last edited 10.12.2015