juquadraticengine errors

Posted by Fabien Le Floc'h on Nov 28, 2013; 2:50pm
URL: http://quantlib.414.s1.nabble.com/juquadraticengine-errors-tp14681.html

Hello,

I noticed a few errors in juquadraticengine.cpp regarding the greeks:

- the delta and gamma should be computed differently if the option is exercised early (a special case just like the results._value case).

- the delta formula is wrong (the paper formula is wrong as well), it needs to use d1(S) and not d1(S*) (called d1_Sk in quantlib).

- the gamma formula is wrong for the same reasons. And there is an additional coding error, the term  '+ lambda * (1 - lambda) / (spot * spot * (1 - chi)))' should be ' + lambda * (lambda-1) / (spot * spot * (1 - chi)))' according to the paper.

It can be easily verified numerically that the greeks obtained by the current code are completely nonsensical. After those fixes, they are good (see attached doc).

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