Double Kernel Estimation of Sensitivities

DOI10.1239/JAP/1253279852MaRDI QIDQ3182432zbMATH OpenOpenAlexFDO

Authors Romuald Elie

Publication date 8 October 2009

Published in Journal of Applied Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0909.2624

zbMATH Keywords

nonparametric regressionMonte Carlo simulationsensitivity estimation

Mathematics Subject Classification ID

Density estimation (62G07) Nonparametric regression and quantile regression (62G08) Monte Carlo methods (65C05)

Abstract: This paper adresses the general issue of estimating the sensitivity of the expectation of a random variable with respect to a parameter characterizing its evolution. In finance for example, the sensitivities of the price of a contingent claim are called the Greeks. A new way of estimating the Greeks has been recently introduced by Elie, Fermanian and Touzi through a randomization of the parameter of interest combined with non parametric estimation techniques. This paper studies another type of those estimators whose interest is to be closely related to the score function, which is well known to be the optimal Greek weight. This estimator relies on the use of two distinct kernel functions and the main interest of this paper is to provide its asymptotic properties. Under a little more stringent condition, its rate of convergence equals the one of those introduced by Elie, Fermanian and Touzi and outperforms the finite differences estimator. In addition to the technical interest of the proofs, this result is very encouraging in the dynamic of creating new type of estimators for sensitivities.

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Cites work

• scientific article; zbMATH DE number 3870362 (Why is no real title available?)
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Cited in

(5)

• Kernel estimation of Greek weights by parameter randomization
• Sensitivity estimates from characteristic functions
• Sensitivity estimates for compound sums
• Stochastic control and numerical methods in mathematical finance.
• Estimating sensitivities of portfolio credit risk using Monte Carlo

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