A New Computing Method for Greeks Using Stochastic Sensitivity Analysis

  • Authors:

  • Masato Koda

  • Affiliations:

  • Systems and Information Engineering, University of Tsukuba, 1-1-1 Tennou-Dai, Tsukuba, 305-8573, Japan

  • Venue:
  • ICCS '07 Proceedings of the 7th international conference on Computational Science, Part II
  • Year:
  • 2007

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Abstract

In a risk management of derivative securities, Greeks, i.e. sensitivity coefficients, are important measures of market risk to evaluate the impact of misspecification of some stochastic model on the expected payoff function. We investigate a new computing method for Greeks based on Malliavin calculus without resort to a direct differentiation of the complex payoff functions. As a result, a new relation between Γand Δis obtained for the Asian option.