Options, Greeks, and risk management

Revisiting the Greeks for European and American options

How the Greeks would have hedged correlation risk of foreign exchange options

The author shows how to compute correlation coefficients in an ndimensional geometric Brownian motion model for foreign exchange rates, interprets the result geometrically and applies it to eliminate correlation risk when trading multi-asset options

Kernel Estimation of the Greeks for Options with Discontinuous Payoffs

The Greeks are the derivatives (also known as sensitivities) of the option prices with respect to market parameters. They play an important role in financial risk management. Among many Monte Carlo methods of estimating the Greeks, the classical pathwise method requires only the pathwise information that is directly observable from simulation and is generally easier to implement than many other...

Risk Management with Options and Futures under Liquidity Risk

Managing price risk with futures contracts creates liquidity risk through marking to market. Liquidity risk matters in an imperfect capital market where interim losses on a futures position have to be financed at a borrowing rate that is higher than the risk-free rate. However, the impact of liquidity risk can be mitigated using options on futures. This paper analyzes the optimal risk managemen...

Comparison of Selected Advanced Numerical Methods for Greeks Calculation of Vanilla Options

Option valuation has been a challenging issue of financial engineering and optimization for a long time. The increasing complexity of market conditions requires utilization of advanced models that, commonly, do not lead to closed-form solutions. Development of novel numerical procedures, which prove to be efficient within various option valuation problems, is therefore worthwhile. Notwithstan...