On the errors and comparison of Vega estimation methods

Shackleton, M B and Chung, S L (2003) On the errors and comparison of Vega estimation methods. Working Paper. The Department of Accounting and Finance, Lancaster University.

[img]
Preview
PDF (Document.pdf)
Document.pdf

Download (471kB)

Abstract

This article discusses convergence problems when calculating Vega (option sensitivity to volatility) that arise from discretization errors embedded in the lattice approach. Four alternative improvements to the traditional binomial method are discussed and investigated for performance. We also propose a new Modified Binomial (MB) Method to calculate Vegas. Numerical results show that although the MB is not the most price accurate of the models, due to its error structure as a function of volatility, it produces the most accurate and fastest Vega estimates

Item Type:
Monograph (Working Paper)
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/aacsb/disciplinebasedresearch
Subjects:
ID Code:
48687
Deposited By:
Deposited On:
11 Jul 2011 21:06
Refereed?:
No
Published?:
Published
Last Modified:
07 Apr 2020 23:36