A New Computational Scheme for Computing Greeks by the Asymptotic Expansion Approach

Ryosuke Matsuoka, Akihiko Takahashi and Yoshihiko Uchida
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Ryosuke Matsuoka: Tokyo Marine & Nichido Fire Insurance co., Ltd.
Akihiko Takahashi: Faculty of Economics, University of Tokyo
Yoshihiko Uchida: Graduate School of Economics, Osaka University

No CIRJE-F-366, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: We developed a new scheme for computing "Greeks"of derivatives by an asymptotic expansion approach. In particular, we derived analytical approximation formulae for deltas and Vegas of plain vanilla and av-erage European call options under general Markovian processes of underlying asset prices. Moreover, we introduced a new variance reduction method of Monte Carlo simulations based on the asymptotic expansion scheme. Finally, several numerical examples under CEV processes confirmed the validity of our method.

Pages: 34 pages
Date: 2005-09
New Economics Papers: this item is included in nep-cmp
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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2005cf366

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