[R-SIG-Finance] American option sensitivities
jctoll at gmail.com
Fri Feb 10 01:02:01 CET 2012
On Thu, Feb 9, 2012 at 5:17 PM, Dirk Eddelbuettel <edd at debian.org> wrote:
> 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.
Thank you for your response. I was hoping you might reply.
I understand the concept of your suggestion, although I don't have any
practical experience implementing it. I'm guessing this is what's
generally referred to as finite difference methods. In theory, the
first order greeks should be simple enough, although my impression is
the second or third order greeks may be a bit more challenging.
I hate to trouble you for more information, but I'm curious why? Is
this the "standard" method of calculating greeks for American options?
Has QuantLib decided not to implement this calculation? Just curious.
> | Thanks for any clarification.
> | Best,
> | James
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