Discrete Malliavin calculus and computations of greeks in the binomial tree

Yoshifumi Muroi, Shintaro Suda

Research output: Contribution to journalArticle

4 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)349-361
Number of pages13
JournalEuropean Journal of Operational Research
Volume231
Issue number2
DOIs
Publication statusPublished - 2013 Dec 1

Keywords

  • Binomial tree
  • Discrete Malliavin calculus
  • European options
  • Greeks

ASJC Scopus subject areas

  • Computer Science(all)
  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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