Giles, M. B. and Burgos, Sylvestre (2011) Computing Greeks using multilevel path simulation. Technical Report. .. (Unpublished)

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Abstract
We investigate the extension of the multilevel Monte Carlo method [2, 3] to the calculation of Greeks. The pathwise sensitivity analysis [5] differentiates the path evolution and effectively reduces the smoothness of the payoff. This leads to new challenges: the use of naive algorithms is often impossible because of the inapplicability of pathwise sensitivities to discontinuous payoffs.
These challenges can be addressed in three different ways: payoff smoothing using conditional expectations of the payoff before maturity [5]; an approximation of the above technique using path splitting for the final timestep [1]; the use of a hybrid combination of pathwise sensitivity and the Likelihood Ratio Method [4]. We discuss the strengths and weaknesses of these alternatives in different multilevel Monte Carlo settings.
Item Type:  Technical Report (Technical Report) 

Subjects:  D  G > Game theory, mathematical finance, economics, social and behavioral sciences 
Research Groups:  Mathematical and Computational Finance Group 
ID Code:  1046 
Deposited By:  Eprints Administrator 
Deposited On:  28 Jan 2011 13:37 
Last Modified:  29 May 2015 18:44 
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