A note on the numerical approximation of Greeks for American-style options

Hout, Karel J. in ’t

Mathematics and Computers in Simulation (MATCOM), 2025, vol. 230, issue C, 501-516

Abstract: In this note, we consider the approximation of the Greeks Delta and Gamma of American-style options through the numerical solution of time-dependent partial differential complementarity problems (PDCPs). This approach is very attractive as it can yield accurate approximations to these Greeks at essentially no additional computational cost during the numerical solution of the PDCP for the pertinent option value function. For the temporal discretization, the Crank–Nicolson method is arguably the most popular method in computational finance. It is well-known, however, that this method can have an undesirable convergence behaviour in the approximation of the Greeks Delta and Gamma for American-style options, even when backward Euler damping (Rannacher smoothing) is employed.

Keywords: American option; Greeks; Partial differential complementarity problem; Runge–Kutta methods; Convergence (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378475424004361
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:230:y:2025:i:c:p:501-516

DOI: 10.1016/j.matcom.2024.10.038

Access Statistics for this article

Mathematics and Computers in Simulation (MATCOM) is currently edited by Robert Beauwens

More articles in Mathematics and Computers in Simulation (MATCOM) from Elsevier
Bibliographic data for series maintained by Catherine Liu ().