Efficient Greek Estimation in Generic Market Models

27 Pages Posted: 24 Jul 2009

See all articles by Mark S. Joshi

Mark S. Joshi

University of Melbourne - Centre for Actuarial Studies (deceased)

Chao Yang

Origin Energy

Date Written: July 23, 2009

Abstract

We first develop an efficient algorithm to compute Deltas of interest rate derivatives for a number of standard market models. The computational complexity of the algorithms is shown to be proportional to the number of rates times the number of factors per step. We then show how to extend the method to efficiently compute Vegas in those market models.

Keywords: adjoint method, Delta, Vega, computational order, market model, Monte Carlo simulation

JEL Classification: G13

Suggested Citation

Joshi, Mark and Yang, Chao, Efficient Greek Estimation in Generic Market Models (July 23, 2009). Available at SSRN: https://ssrn.com/abstract=1437847 or http://dx.doi.org/10.2139/ssrn.1437847

Mark Joshi (Contact Author)

University of Melbourne - Centre for Actuarial Studies (deceased) ( email )

Melbourne, 3010
Australia

Chao Yang

Origin Energy ( email )

Tower 1, International Towers, 100 Barangaroo Ave
Sydney, NSW
Australia

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