Re: Vega, rho, and theta not provided

Posted by John Orford on
URL: http://quantlib.414.s1.nabble.com/Vega-rho-and-theta-not-provided-tp16447p16448.html

Hey Alex,

So, Quantlib has a 'policy' of baking in the analytical solutions to things, but then leaving the numerical calculations to the user; while at first it might be a bit frustrating, but I think it's a good idea as numerical solutions can take on many forms.

I use Python, so unsure about the C code - in any case it looks like you're on the right track. Unsure about calling update though.

See the attached Python code which looks OK to me. May help a little.

John

On Wed, 8 Apr 2015 at 03:57 Alexander Lamana <[hidden email]> wrote:

Hi, I'm trying to get the Greeks for an AmericanOption. Delta and gamma are provided, but the other three are not.

I tried something like the following. It's basically what Luigi suggested in another thread (http://quantlib.10058.n7.nabble.com/Vega-and-Rho-calculation-for-European-and-American-Options-using-Finite-Difference-Method-tp7925p7928.html). 

void calculateGreeks(boost::shared_ptr<SimpleQuote> rQuote,

boost::shared_ptr<SimpleQuote> pQuote,

boost::shared_ptr<SimpleQuote> dQuote,

boost::shared_ptr<SimpleQuote> vQuote,

boost::shared_ptr<OneAssetOption> option) {

// Perturb the implied volatility to calculate vega.

const Rate v0 = vQuote->value();

// Bump it by 1%.

const Spread dv = v0 * 0.01;

vQuote->setValue(v0 + dv);

option->update();

const Real V1 = option->NPV();

vQuote->setValue(v0 - dv);

option->update();

const Real V2 = option->NPV();

const Real vega = (V1 - V2) / (2 * dv);

vQuote->setValue(v0); // Restore the original implied volatility.

// Do something similar for rho and theta...

}

Is there a better way to do this? The values I get for rho, vega, and theta don't really align with the expected results.

Also, since I'm using SimpleQuotes (and passing handles to the term structures), do I need to call update()?

Thanks,

Alex

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