Computing Greeks: A Drift-Adjustment Technique for European and Asian Style Derivatives

15 Pages Posted: 18 Sep 2007  

Peter den Iseger

Cardano Risk Management

Emöke Oldenkamp

Cardano

Date Written: May 4, 2006

Abstract

The paper introduces a method which reduces the computation of the Greeks back to a similar problem as of computing the price of the derivative in question; that is, if there is an efficient algorithm pricing the derivative then in order to compute the Greeks we will use the same efficient algorithm only with a modfied payoff function. The method is based on a Girsanov type drift adjustment technique. This technique transforms the expression of (a function of) the price of the derivative under yet another measure. These expressions can then be computed using the same numerical techniques as for calculating the price of derivative securities.

Keywords: derivatives, girsanov, algorithm, securities

JEL Classification: G13, C63

Suggested Citation

Iseger, Peter den and Oldenkamp, Emöke, Computing Greeks: A Drift-Adjustment Technique for European and Asian Style Derivatives (May 4, 2006). Available at SSRN: https://ssrn.com/abstract=1013506 or http://dx.doi.org/10.2139/ssrn.1013506

Peter Den Iseger (Contact Author)

Cardano Risk Management ( email )

Rotterdam 3011 AA
Netherlands
+31 10 2434747 (Phone)

HOME PAGE: http://www.cardano.com

Emöke Oldenkamp

Cardano ( email )

Rotterdam 3011 AA
Netherlands

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