WIAS Preprint No. 584, (2000)

Efficient computation of option price sensitivities using homogeneity and other tricks



Authors

  • Reiß, Oliver
  • Wystup, Uwe

2010 Mathematics Subject Classification

  • 91-08 91B28

Keywords

  • Calculation of Greeks, Derivatives of option prices, Homogeneity properties of financial markets

Abstract

No front-office software can survive without providing derivatives of options prices with respect to underlying market or model parameters, the so called Greeks. We present a list of common Greeks and exploit homogeneity properties of financial markets to derive relationships between Greeks out of which many are model-independent. We apply the results to European style options, rainbow options, as well as options priced in Heston's stochastic volatility model and avoid exorbitant and time-consuming computations of derivatives which even strong symbolic calculators fail to produce.

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