Previous Topic

Next Topic

oRGW( ) Model Greeks

Due to the complexity of deriving the Greeks through a closed-from solution, they are evaluated by computing a discrete approximation of the partial derivative. That is, the option is revalued with a fractional change for each relevant parameter (e.g. Spot for Delta, Volatility for Vega, etc) and the change in the option value divided by the increment is the approximated Greek.

 

Equation Template

 

OV = option value.

OV1 = option value derived from using the incremented parameter.

S = spot price of the underlying asset.

S1 = S + I.

r = risk-free interest rate, expressed with continuous compounding.

r1 = r + I.

b = cost of carry for the underlying asset, expressed with continuous compounding.

b1 = b + I.

vol = volatility of the relative price change of the underlying asset.

vol1 = vol + I.

T = time to maturity measured in years (actual/365 basis).

T1 = T - I.

I = an incremental change of 0.00001.

Equation Template = Delta of OV1

Return to www.derivativepricing.com website

Copyright 2013 Hedgebook Ltd.