Efficient computation of option price sensitivities using homogeneity and other tricks
- Reiß, Oliver
- Wystup, Uwe
2010 Mathematics Subject Classification
- 91-08 91B28
- Calculation of Greeks, Derivatives of option prices, Homogeneity properties of financial markets
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.