[R-SIG-Finance] American option sensitivities

Dirk Eddelbuettel edd at debian.org
Fri Feb 10 00:17:05 CET 2012

On 9 February 2012 at 17:06, J Toll wrote:
| Hi,
| I'd like to calculate sensitivities on American options.  I was hoping
| somebody might be able to summarize of the current state of that
| functionality within the various R packages.  It's my understanding
| that the fOptions package can calculate greeks for European options
| but not American.  RQuantLib appears to have had the ability to
| calculate greeks for American options at one point, but it appears
| that functionality was removed in Release 0.1.8 sometime around
| 2003-11-28.

... because that functionality was removed upstream by QuantLib.

| http://lists.r-forge.r-project.org/pipermail/rquantlib-commits/2010-August/000117.html
| Additionally, from RQuantLib ?AmericanOptions says,
| "Note that under the new pricing framework used in QuantLib, binary
| pricers do not provide analytics for 'Greeks'. This is expected to be
| addressed in future releases of QuantLib."
| I haven't found any other packages for calculating option
| sensitivities.  Are there any other packages?
| Regarding RQuantLib, is the issue that that functionality hasn't been
| implemented in R yet, or is it QuantLib that's broken?

There is a third door behind which you find the price: "numerical shocks".

Evaluate your american option, then shift the various parameters (spot, vol,
int.rate, time to mat, ...) each by a small amount and calculate the change
in option price -- voila for the approximate change in option value for
change input.  You can also compute twice at  'x - eps' and 'x + eps' etc.


| Thanks for any clarification.
| Best,
| James
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