We propose a way to compute the hedging Delta using the Malliavin weight method. Our approach, which we name the lambda-method, generally outperforms the standard Monte Carlo finite difference method, especially for discontinuous payoffs. Furthermore, our approach is nonparametric, as we only assume a general local volatility model and we substitute the volatility and the other processes involved in the Greek formula with quantities that can be nonparametrically estimated from a given time series of observed prices.
Non-parametric computation of Greeks using high frequency data / M.E.Mancino, S. Sanfelici. - In: RISKS. - ISSN 2227-9091. - STAMPA. - 8:(2020), pp. 1-17. [10.3390/risks8040120]
Non-parametric computation of Greeks using high frequency data
M. E. Mancino;
2020
Abstract
We propose a way to compute the hedging Delta using the Malliavin weight method. Our approach, which we name the lambda-method, generally outperforms the standard Monte Carlo finite difference method, especially for discontinuous payoffs. Furthermore, our approach is nonparametric, as we only assume a general local volatility model and we substitute the volatility and the other processes involved in the Greek formula with quantities that can be nonparametrically estimated from a given time series of observed prices.File | Dimensione | Formato | |
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