EAN: 9789811910722

SPRINGERBRIEFS IN STATISTICS COMPUTATION OF G...

This book presents new computation schemes for the sensitivity of options using the binomial
tree and introduces readers to the discrete Malliavin calculus. It also shows that applications
of the discrete Malliavin calculus approach to the binomial tree model offer fundamental tools
for computing Greeks. The binomial tree approach is one of the most popular methods in option
pricing. Although it is a fairly traditional model for option pricing  it is still widely used
in financial institutions since it is tractable and easy to understand. However  the book shows
that the tree approach also offers a powerful tool for deriving the Greeks for options. Greeks
are quantities that represent the sensitivities of the price of derivative securities with
respect to changes in the underlying asset price or parameters. The Malliavin calculus  the
stochastic methods of variations  is one of the most popular tools used to derive Greeks.
However  it is also very difficult to understand for most students and practitioners because it
is based on complex mathematics. To help readers more easily understand the Malliavin calculus
the book introduces the discrete Malliavin calculus  a theory of the functional for the
Bernoulli random walk. The discrete Malliavin calculus is significantly easier to understand 
because the functional space of the Bernoulli random walk is realized in a finite dimensional
space. As such  it makes this valuable tool far more accessible for a broad readership.

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