Discrete Malliavin calculus and computations of greeks in the binomial tree

Yoshifumi Muroi and Shintaro Suda

European Journal of Operational Research, 2013, vol. 231, issue 2, 349-361

Abstract: This paper proposes new methods for computation of greeks using the binomial tree and the discrete Malliavin calculus. In the last decade, the Malliavin calculus has come to be considered as one of the main tools in financial mathematics. It is particularly important in the computation of greeks using Monte Carlo simulations. In previous studies, greeks were usually represented by expectation formulas that are derived from the Malliavin calculus and these expectations are computed using Monte Carlo simulations. On the other hand, the binomial tree approach can also be used to compute these expectations. In this article, we employ the discrete Malliavin calculus to obtain expectation formulas for greeks by the binomial tree method. All the results are obtained in an elementary manner.

Keywords: Discrete Malliavin calculus; European options; Greeks; Binomial tree (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:231:y:2013:i:2:p:349-361

DOI: 10.1016/j.ejor.2013.05.038

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