Computation of option Greeks under hybrid stochastic volatility models via Malliavin calculus

DOI10.15559/18-VMSTA100zbMATH Open1390.60198arXiv1806.06061WikidataQ129912575 ScholiaQ129912575MaRDI QIDQ1645191FDOQ1645191

Authors: Bilgi Yilmaz 

Publication date: 28 June 2018

Published in: Modern Stochastics. Theory and Applications (Search for Journal in Brave)

Abstract: This study introduces computation of option sensitivities (Greeks) using the Malliavin calculus under the assumption that the underlying asset and interest rate both evolve from a stochastic volatility model and a stochastic interest rate model, respectively. Therefore, it integrates the recent developments in the Malliavin calculus for the computation of Greeks: Delta, Vega, and Rho and it extends the method slightly. The main results show that Malliavin calculus allows a running Monte Carlo (MC) algorithm to present numerical implementations and to illustrate its effectiveness. The main advantage of this method is that once the algorithms are constructed, they can be used for numerous types of option, even if their payoff functions are not differentiable.

Full work available at URL: https://arxiv.org/abs/1806.06061

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zbMATH Keywords

Malliavin calculusBismut-Elworthy-Li formulacomputation of Greekshybrid stochastic volatility models

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Stochastic calculus of variations and the Malliavin calculus (60H07) Diffusion processes (60J60)

Cites Work

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• Formulae for the derivatives of heat semigroups
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Cited In (10)

• Computations of Greeks in a market with jumps via the Malliavin calculus
• Continuation value computation using Malliavin calculus under general volatility stochastic process for American option pricing
• An approximate Malliavin weight for variance gamma process: sensitivity analysis of European style options
• Computation of Greeks using the discrete Malliavin calculus and binomial tree
• SIMULATION OF MULTI-ASSET OPTION GREEKS UNDER A SPECIAL LÉVY MODEL BY MALLIAVIN CALCULUS
• Sensitivity of option prices via fuzzy Malliavin calculus
• Computation of the Greeks delta and gamma of Asian option: a Malliavin calculus approach
• Computation of Greeks using Malliavin's calculus in jump type market models
• European and Asian Greeks for exponential Lévy processes
• On the sensitivity analysis of spread options using Malliavin calculus

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