Revisiting the Greeks for European and American Options

Emmanuel Gobet
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Emmanuel Gobet: Ecole Polytechnique, Centre de Mathématiques Appliquées, 91128 Palaiseau Cedex, France

Chapter 3 in Stochastic Processes and Applications to Mathematical Finance, 2004, pp 53-71 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractIn this paper, we address the problem of the Greeks' evaluation for European and American options, when the model is defined by a general stochastic differential equation. We represent the Greeks as expectations, in order to allow their computations using Monte Carlo simulations. We avoid the use of Malliavin calculus techniques since in general, it leads to random variables whose simulations are costly in terms of computational time. We take advantage of the Markovian structure to derive simple formulas in a great generality. Moreover, they appear to be efficient in practice.

Keywords: Stochastic Processes; Stochastic Differential Equations; Malliavin Calculus; Stochastic Control and Optimization; Functionals of Brownian Motions and Lévy Processes; Stochastic Models of Financial Market; Derivative Pricing; Hedging Problem (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (14)

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