[R-SIG-Finance] American option sensitivities

Dirk Eddelbuettel edd at debian.org
Fri Feb 10 02:17:46 CET 2012

Hi James,

On 9 February 2012 at 18:02, J Toll wrote:
| 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

More like "Numerical Differentiation".

| 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.

You'd have to ask on quantlib-devel.  My memory is a little foggy but I think
that question had in fact been asked on the list. If memory serves, Luigi
essentially said that it was always 'just an approximation' and it is better
to let the user control it.  If you read up on numerical differentiation you
will learn about shifting just one side, or shifting on both (as I mentioned
in my earlier reply), by how much to shift etc pp.  

Just write up a nice R-level function and contribute it back to RQuantLib :)


"Outside of a dog, a book is a man's best friend. Inside of a dog, it is too
dark to read." -- Groucho Marx

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