Asymptotic computation of Greeks under a stochastic volatility model

- Journal title : Communications for Statistical Applications and Methods
- Volume 23, Issue 1, 2016, pp.21-32
- Publisher : The Korean Statistical Society
- DOI : 10.5351/CSAM.2016.23.1.021

Title & Authors

Asymptotic computation of Greeks under a stochastic volatility model

Park, Sang-Hyeon; Lee, Kiseop;

Park, Sang-Hyeon; Lee, Kiseop;

Abstract

We study asymptotic expansion formulae for numerical computation of Greeks (i.e. sensitivity) in finance. Our approach is based on the integration-by-parts formula of the Malliavin calculus. We propose asymptotic expansion of Greeks for a stochastic volatility model using the Greeks formula of the Black-Scholes model. A singular perturbation method is applied to derive asymptotic Greeks formulae. We also provide numerical simulation of our method and compare it to the Monte Carlo finite difference approach.

Keywords

computation of Greeks;asymptotics;stochastic volatility;singular perturbation;Malliavin calculus;

Language

English

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