Computation of Greeks using binomial trees in a jump-diffusion model

Shintaro Suda; Yoshifumi Muroi

doi:10.1016/j.jedc.2014.09.032

Computation of Greeks using binomial trees in a jump-diffusion model

Shintaro Suda, Yoshifumi Muroi

EEF - Economics and Management

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

Abstract

We propose a new algorithm for computing the Greeks in jump-diffusion settings using binomial trees. We further demonstrate that the Greeks for European options converge to the Malliavin Greeks in the continuous time model. Our proposed algorithm is efficient, because the price and the Greeks (Delta, Gamma, Vega, and Rho) can be computed simultaneously. Computation of the Greeks for American options is also discussed.

Original language	English
Pages (from-to)	93-110
Number of pages	18
Journal	Journal of Economic Dynamics and Control
Volume	51
DOIs	https://doi.org/10.1016/j.jedc.2014.09.032
Publication status	Published - 2015 Feb 1

Keywords

Binomial tree
Greeks
Jump-diffusion model
Options

ASJC Scopus subject areas

Economics and Econometrics
Control and Optimization
Applied Mathematics

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10.1016/j.jedc.2014.09.032

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abstract = "We propose a new algorithm for computing the Greeks in jump-diffusion settings using binomial trees. We further demonstrate that the Greeks for European options converge to the Malliavin Greeks in the continuous time model. Our proposed algorithm is efficient, because the price and the Greeks (Delta, Gamma, Vega, and Rho) can be computed simultaneously. Computation of the Greeks for American options is also discussed.",

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author = "Shintaro Suda and Yoshifumi Muroi",

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AU - Muroi, Yoshifumi

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AB - We propose a new algorithm for computing the Greeks in jump-diffusion settings using binomial trees. We further demonstrate that the Greeks for European options converge to the Malliavin Greeks in the continuous time model. Our proposed algorithm is efficient, because the price and the Greeks (Delta, Gamma, Vega, and Rho) can be computed simultaneously. Computation of the Greeks for American options is also discussed.

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KW - Greeks

KW - Jump-diffusion model

KW - Options

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JO - Journal of Economic Dynamics and Control

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ER -

Computation of Greeks using binomial trees in a jump-diffusion model

Abstract

Keywords

ASJC Scopus subject areas

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