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On Higher Derivatives of Expectations

Robert de Rozario

Risk and Insurance from University Library of Munich, Germany

Abstract: It is understood that derivatives of an expectation $E [\phi(S(T)) | S(0) = x]$ with respect to $x$ can be expressed as $E [\phi(S(T)) \pi | S(0) = x]$, where $S(T)$ is a stochastic variable at time $T$ and $\pi$ is a stochastic weighting function (weight) independent of the form of $\phi$. Derivatives of expectations of this form are encountered in various fields of knowledge. We establish two results for weights of higher order derivatives under the dynamics given by (\ref{dynamics}). Specifically, we derive and solve a recursive relationship for generating weights. This results in a tractable formula for weights of any order.

Keywords: price sensitivities; greeks; malliavin calculus (search for similar items in EconPapers)
JEL-codes: C63 (search for similar items in EconPapers)
Pages: 6 pages
Date: 2003-08-19
Note: Type of Document - LaTex; prepared on IBM PC ; to print on PostScript; pages: 6 ; figures: included. In the process of being submitted
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Handle: RePEc:wpa:wuwpri:0308001