Book Image

Mastering R for Quantitative Finance

Book Image

Mastering R for Quantitative Finance

Overview of this book

This book is intended for those who want to learn how to use R's capabilities to build models in quantitative finance at a more advanced level. If you wish to perfectly take up the rhythm of the chapters, you need to be at an intermediate level in quantitative finance and you also need to have a reasonable knowledge of R.
Table of Contents (20 chapters)
Mastering R for Quantitative Finance
Credits
About the Authors
About the Reviewers
www.PacktPub.com
Preface
Index

Greeks – the link back to the vanilla world


As we explained in the introductory part of this chapter, Greeks are partial derivatives. Some important Greeks are as follows:

  • delta: This denotes the DvalueDspot, which is the change of the option price with respect to the change of the underlying spot price

  • gamma: This denotes the DdeltaDspot

  • vega: This denotes the DvalueDvolatility

  • theta: This denotes the DvalueDtime

  • rho: This denotes the DvalueDinterest rate

In some simple cases, these partial derivatives can be found analytically. For example, the fOptions package includes the GBSGreeks function that gives the Greeks for vanillas.

Analytical Greeks are convenient; however, there are two problems with them. The first problem is that market-traded parameters are not changing in infinitesimal small increments. For example, on the New York Stock Exchange, the smallest possible change in the stock price is one cent. The stock price either changes at least one cent or there is no change at all. On the...