Book Image

Introduction to R for Quantitative Finance

Book Image

Introduction to R for Quantitative Finance

Overview of this book

Introduction to R for Quantitative Finance will show you how to solve real-world quantitative fi nance problems using the statistical computing language R. The book covers diverse topics ranging from time series analysis to fi nancial networks. Each chapter briefl y presents the theory behind specific concepts and deals with solving a diverse range of problems using R with the help of practical examples.This book will be your guide on how to use and master R in order to solve quantitative finance problems. This book covers the essentials of quantitative finance, taking you through a number of clear and practical examples in R that will not only help you to understand the theory, but how to effectively deal with your own real-life problems.Starting with time series analysis, you will also learn how to optimize portfolios and how asset pricing models work. The book then covers fixed income securities and derivatives such as credit risk management.
Table of Contents (17 chapters)
Introduction to R for Quantitative Finance
Credits
About the Authors
About the Reviewers
www.PacktPub.com
Preface
Index

Greeks


Understanding the risk-types that an option might involve is crucial for all market participants. The idea behind Greeks is to measure the different types of risks; they represent the sensitivity of the option to different factors. The Greeks of a plain vanilla option are: delta (, sensitivity to the underlying price), gamma (, sensitivity of delta to the underlying price, delta of delta), theta (, sensitivity to time), rho (, sensitivity to the risk-free rate), and vega (V, sensitivity to the volatility). In terms of mathematics, all Greeks are partial derivatives of the derivative price:

The Greeks can be computed easily for each option with the GBSGreeks function:

> sapply(c('delta', 'gamma', 'vega', 'theta', 'rho'), function(greek)
+   GBSGreeks(Selection = greek, TypeFlag = "c", S = 900, X = 950,
+     Time = 1/4, r = 0.02, b = 0.02, sigma = 0.22)
+ )
    delta         gamma          vega         theta           rho
0.347874404   0.003733069 166.308230868 -79.001505841  72...