Efficient greek estimation in generic swap-rate market models

Article type: Research Article

Authors: Joshi, Mark | Yang, Chao

Affiliations: Centre for Actuarial Studies, Department of Economics, University of Melbourne, Victoria 3010, Australia. E-mail: [email protected]; [email protected]

Abstract: We first develop an efficient algorithm to compute Deltas of interest rate derivatives for a number of standard market models. The computational complexity of the algorithms is shown to be proportional to the number of rates times the number of factors per step. We then show how to extend the method to efficiently compute Vegas in those market models.

Keywords: adjoint method, Delta, Vega, computational order, market model, Monte Carlo simulation

DOI: 10.3233/AF-2011-002

Journal: Algorithmic Finance, vol. 1, no. 1, pp. 17-33, 2011