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Title:Efficient computation of option price sensitivities for options of American style PDF Logo
Authors:Wallner, Christian
Wystup, Uwe
Issue Date:2004
Series/Report no.:CPQF Working Paper Series 1
Abstract:No front-office software can survive without providing derivatives of option prices with respect to underlying market or model parameters, the so called Greeks. If a closed form solution for an option exists, Greeks can be computed analytically and they are numerically stable. However, for American style options, there is no closed-form solution. The price is computed by binomial trees, finite difference methods or an analytic approximation. Taking derivatives of these prices leads to instable numerics or misleading results, specially for Greeks of higher order. We compare the computation of the Greeks in various pricing methods and conclude with the recommendation to use Leisen-Reimer trees.
Subjects:American options
Leisen-Reimer trees
Persistent Identifier of the first edition:urn:nbn:de:101:1-2009032302
Document Type:Working Paper
Appears in Collections:CPQF Working Paper Series, Frankfurt School of Finance and Management

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