Computing Greeks for Lévy Models: The Fourier Transform Approach
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Publication:4606769
Abstract: The computation of Greeks for exponential L'evy models are usually approached by Malliavin Calculus and other methods, as the Likelihood Ratio and the finite difference method. In this paper we obtain exact formulas for Greeks of European options based on the Lewis formula for the option value. Therefore, it is possible to obtain accurate approximations using Fast Fourier Transform. We will present an exhaustive development of Greeks for Call options. The error is shown for all Greeks in the Black-Scholes model, where Greeks can be exactly computed. Other models used in the literature are compared, such as the Merton and Variance Gamma models. The presented formulas can reach desired accuracy because our approach generates error only by approximation of the integral.
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Cites work
- A transform approach to compute prices and Greeks of barrier options driven by a class of Lévy processes
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- scientific article; zbMATH DE number 6137478 (Why is no real title available?)
- Introductory lectures on fluctuations of Lévy processes with applications.
- Malliavin Greeks without Malliavin calculus
- Prices and sensitivities of barrier and first-touch digital options in Lévy-driven models
- The Variance Gamma Process and Option Pricing
Cited in
(12)- Pricing exotic options in a regime switching economy: a Fourier transform method
- Lewis model revisited: option pricing with Lévy processes
- A family of density expansions for Lévy-type processes
- Analysis of Fourier transform valuation formulas and applications
- Numerical analysis on local risk-minimization for exponential Lévy models
- A simulation approach to financial options Greeks estimation under Lévy processes
- Calculating the Greeks by cubature formulae
- Computation of Greeks in LIBOR models driven by time–inhomogeneous Lévy processes
- Pricing methods for -quantile and perpetual early exercise options based on Spitzer identities
- Computation of Greeks for asset price dynamics driven by stable and tempered stable processes
- European and Asian Greeks for exponential Lévy processes
- A new computational scheme for computing Greeks by the asymptotic expansion approach
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