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An efficient algorithm to compute correlation Greeks

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  • Antoine Vandendorpe

Abstract

We develop a new algorithm that allows us to compute pairwise-correlation sensitivities in a Monte Carlo framework by modifying only one trajectory at a time, resulting in a significant decrease in Brownian noise, computing time and memory requirements. We apply this algorithm to the case of the risk management of a large portfolio of options on baskets of equities, but the same algorithm can be used for computing correlation sensitivities in any Monte Carlo framework. We show how this idea can also simplify the computation of correlation Greeks in the framework of adjoint algorithmic differentiation.

Suggested Citation

  • Antoine Vandendorpe, . "An efficient algorithm to compute correlation Greeks," Journal of Computational Finance, Journal of Computational Finance.
    • Handle: RePEc:rsk:journ0:7963154
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