Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/40183
Authors: 
Wallner, Christian
Wystup, Uwe
Year of Publication: 
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
Greeks
Leisen-Reimer trees
JEL: 
C63
F31
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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