Accurate and Efficient Computations of the Greeks for Options Near Expiry Using the Black-Scholes Equations

<div>(a) Vega <svg height="6.34998pt" id="M374" style="vertical-align:-0.2063899pt" version="1.1" viewbox="-0.0498162 -6.14359 6.02377 6.34998" width="6.02377pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M213 67C239 136 257 225 255 300C253 353 242 447 164 447C112 447 54 389 41 319L67 309C90 362 117 377 134 377C184 377 189 277 190 239C193 153 164 43 146 -12H176C278 73 450 253 450 390C450 439 410 463 396 463C384 463 380 459 382 449C385 440 389 415 389 402C389 284 312 146 216 67H213Z" id="g185-47"></path><glyph.data ascent="989" descent="-303" horiz-adv-x="454" vert-adv-y="454"></glyph.data></g></svg> at time <svg height="11.439pt" id="M375" style="vertical-align:-2.15067pt" version="1.1" viewbox="-0.0498162 -9.28833 53.7647 11.439" width="53.7647pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M620 675H597C578 656 570 650 541 650H144C112 650 104 653 94 675H72C59 618 42 552 23 493L53 491C71 534 88 564 105 585C124 608 144 615 238 615H290L197 121C182 40 174 34 88 28L82 0H361L367 28C275 34 266 38 281 121L374 615H441C522 615 543 608 553 583C562 560 566 531 565 493L597 494C603 551 612 629 620 675Z" id="g113-85"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="637" vert-adv-y="637"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,11.917,0)"><path d="M535 323V373H52V323H535ZM535 138V188H52V138H535Z" id="g117-34"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="587" vert-adv-y="587"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,23.18,0)"><path d="M384 0V27C293 34 287 42 287 114V635C232 613 172 594 109 583V559L157 557C201 555 205 550 205 499V114C205 42 199 34 109 27V0H384Z" id="g113-50"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,29.42,0)"><path d="M368 703H309L44 -163H104L368 703Z" id="g113-48"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="412" vert-adv-y="412"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,34.781,0)"><path d="M285 378C315 398 338 416 353 432C373 451 384 474 384 503C384 579 325 635 236 635H235C182 635 136 610 108 579L65 516L85 496C110 533 150 575 205 575C258 575 300 543 300 481C300 407 232 369 141 339L147 310C163 315 188 321 211 321C268 321 338 284 338 192C338 94 288 40 217 40C160 40 119 68 93 91C85 98 77 97 69 91C60 84 47 71 46 58C44 46 48 35 62 22C75 10 116 -12 162 -12C234 -12 424 62 424 224C424 297 373 359 285 376V378Z" id="g113-52"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,41.021,0)"><path d="M137 343C167 482 260 545 321 574C357 591 397 603 429 609L423 641C382 634 335 622 295 608C189 570 37 457 37 238C37 84 125 -12 242 -12C362 -12 447 89 447 209C447 311 374 393 267 393C247 393 226 386 204 376L137 343ZM227 337C318 337 361 256 361 173C361 105 336 22 258 22C176 22 126 120 126 240C126 266 127 291 132 310C155 323 189 337 227 337Z" id="g113-55"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,47.262,0)"><path d="M153 550H386L412 615L406 623H120L82 318C104 327 142 338 184 338C294 338 347 275 347 187C347 112 305 39 221 39C160 39 119 71 97 89C88 97 80 96 71 90C59 80 50 67 49 57C48 45 52 36 66 23C80 9 123 -12 169 -12C221 -11 288 15 342 59C403 109 431 165 431 225C431 308 366 395 238 395C212 395 165 379 127 364L153 550Z" id="g113-54"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480"></glyph.data></g></svg> as a function of the asset price <svg height="6.1673pt" id="M376" style="vertical-align:-0.2063904pt" version="1.1" viewbox="-0.0498162 -5.96091 7.39387 6.1673" width="7.39387pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M536 404C536 423 520 448 491 448C445 448 398 404 308 283L286 338C255 416 242 448 217 448C182 448 138 402 92 341L111 321C149 368 169 378 178 378C188 378 198 363 214 320L254 212C185 117 138 65 107 65C98 65 85 69 82 75C79 82 73 86 65 86C44 86 23 60 23 39C23 7 44 -12 71 -12C119 -12 168 33 265 177L306 61C321 17 347 -12 373 -12C413 -12 465 33 507 96L491 119C459 84 432 60 413 60C395 60 378 92 358 148L321 250C341 279 369 310 389 332C417 363 439 382 456 382C466 382 475 376 481 368C486 361 492 358 496 358C513 358 536 381 536 404Z" id="g113-121"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="559" vert-adv-y="559"></glyph.data></g></svg> by closed-form formula, numerical approximation for only one time step size <svg height="11.439pt" id="M377" style="vertical-align:-2.15067pt" version="1.1" viewbox="-0.0498162 -9.28833 60.1194 11.439" width="60.1194pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M600 0V24L339 665L311 657L43 24V0H600ZM497 50H107L303 539L497 50Z" id="g113-133"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="641" vert-adv-y="641"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,8.327,0)"><path d="M471 456L444 459C426 433 414 430 388 430C324 430 270 434 216 434C103 434 51 374 23 338L43 317C96 366 146 380 221 375L154 109C149 86 147 68 147 52C147 4 168 -12 197 -12C240 -12 291 25 334 71L320 96C295 75 268 58 252 58C238 58 227 79 238 138C251 211 272 296 292 372C310 372 332 368 350 368C391 368 421 369 434 371C444 388 455 413 471 456Z" id="g113-241"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="483" vert-adv-y="483"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,18.241,0)"><path d="M535 323V373H52V323H535ZM535 138V188H52V138H535Z" id="g117-34"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="587" vert-adv-y="587"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,29.504,0)"><path d="M384 0V27C293 34 287 42 287 114V635C232 613 172 594 109 583V559L157 557C201 555 205 550 205 499V114C205 42 199 34 109 27V0H384Z" id="g113-50"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,35.744,0)"><path d="M368 703H309L44 -163H104L368 703Z" id="g113-48"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="412" vert-adv-y="412"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,41.105,0)"><path d="M285 378C315 398 338 416 353 432C373 451 384 474 384 503C384 579 325 635 236 635H235C182 635 136 610 108 579L65 516L85 496C110 533 150 575 205 575C258 575 300 543 300 481C300 407 232 369 141 339L147 310C163 315 188 321 211 321C268 321 338 284 338 192C338 94 288 40 217 40C160 40 119 68 93 91C85 98 77 97 69 91C60 84 47 71 46 58C44 46 48 35 62 22C75 10 116 -12 162 -12C234 -12 424 62 424 224C424 297 373 359 285 376V378Z" id="g113-52"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,47.345,0)"><path d="M137 343C167 482 260 545 321 574C357 591 397 603 429 609L423 641C382 634 335 622 295 608C189 570 37 457 37 238C37 84 125 -12 242 -12C362 -12 447 89 447 209C447 311 374 393 267 393C247 393 226 386 204 376L137 343ZM227 337C318 337 361 256 361 173C361 105 336 22 258 22C176 22 126 120 126 240C126 266 127 291 132 310C155 323 189 337 227 337Z" id="g113-55"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,53.585,0)"><path d="M153 550H386L412 615L406 623H120L82 318C104 327 142 338 184 338C294 338 347 275 347 187C347 112 305 39 221 39C160 39 119 71 97 89C88 97 80 96 71 90C59 80 50 67 49 57C48 45 52 36 66 23C80 9 123 -12 169 -12C221 -11 288 15 342 59C403 109 431 165 431 225C431 308 366 395 238 395C212 395 165 379 127 364L153 550Z" id="g113-54"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480"></glyph.data></g></svg>, and adaptive time step strategy. (b) Errors <svg height="10.3005pt" id="M378" style="vertical-align:-3.2957pt" version="1.1" viewbox="-0.0498162 -7.0048 34.2834 10.3005" width="34.2834pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M213 67C239 136 257 225 255 300C253 353 242 447 164 447C112 447 54 389 41 319L67 309C90 362 117 377 134 377C184 377 189 277 190 239C193 153 164 43 146 -12H176C278 73 450 253 450 390C450 439 410 463 396 463C384 463 380 459 382 449C385 440 389 415 389 402C389 284 312 146 216 67H213Z" id="g185-47"></path><glyph.data ascent="989" descent="-303" horiz-adv-x="454" vert-adv-y="454"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,8.808,0)"><path d="M535 230V280H52V230H535Z" id="g117-33"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="587" vert-adv-y="587"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,19.344,0)"><path d="M213 67C239 136 257 225 255 300C253 353 242 447 164 447C112 447 54 389 41 319L67 309C90 362 117 377 134 377C184 377 189 277 190 239C193 153 164 43 146 -12H176C278 73 450 253 450 390C450 439 410 463 396 463C384 463 380 459 382 449C385 440 389 415 389 402C389 284 312 146 216 67H213Z" id="g185-47"></path><glyph.data ascent="989" descent="-303" horiz-adv-x="454" vert-adv-y="454"></glyph.data></g><g transform="matrix(.0091,0,0,-0.0091,25.246,3.132)"><path d="M384 109C349 76 310 59 268 59C197 59 123 113 120 245C240 248 367 259 384 262C403 266 407 275 407 296C407 376 338 451 254 451H253C201 451 148 425 105 378C65 334 39 272 39 203C39 88 112 -12 235 -12C266 -12 339 5 402 84L384 109ZM230 411C285 411 319 365 319 313C319 298 313 293 294 293C236 291 180 290 125 290C141 370 185 411 230 411Z" id="g58-99"></path><glyph.data ascent="1007" descent="-369" horiz-adv-x="434" vert-adv-y="434"></glyph.data></g><g transform="matrix(.0091,0,0,-0.0091,29.195,3.132)"><path d="M482 0V30C420 38 407 48 370 103L273 248C308 299 331 332 352 357C387 397 401 404 463 409V439H277V409C318 405 324 400 307 369C290 337 270 307 251 279L194 367C175 396 180 402 220 409V439H18V409C74 401 87 395 117 349L204 213C173 168 147 130 119 95C78 46 67 38 5 30V0H195V30C144 38 143 47 162 79C181 112 202 149 225 181L297 70C314 43 307 35 264 30V0H482Z" id="g58-118"></path><glyph.data ascent="1007" descent="-369" horiz-adv-x="481" vert-adv-y="481"></glyph.data></g></svg> as a function of the asset price <svg height="6.1673pt" id="M379" style="vertical-align:-0.2063904pt" version="1.1" viewbox="-0.0498162 -5.96091 7.39387 6.1673" width="7.39387pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M536 404C536 423 520 448 491 448C445 448 398 404 308 283L286 338C255 416 242 448 217 448C182 448 138 402 92 341L111 321C149 368 169 378 178 378C188 378 198 363 214 320L254 212C185 117 138 65 107 65C98 65 85 69 82 75C79 82 73 86 65 86C44 86 23 60 23 39C23 7 44 -12 71 -12C119 -12 168 33 265 177L306 61C321 17 347 -12 373 -12C413 -12 465 33 507 96L491 119C459 84 432 60 413 60C395 60 378 92 358 148L321 250C341 279 369 310 389 332C417 363 439 382 456 382C466 382 475 376 481 368C486 361 492 358 496 358C513 358 536 381 536 404Z" id="g113-121"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="559" vert-adv-y="559"></glyph.data></g></svg> by adaptive time-stepping strategy with respect to <svg height="9.48169pt" id="M380" style="vertical-align:-0.2455406pt" version="1.1" viewbox="-0.0498162 -9.23615 13.8661 9.48169" width="13.8661pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M298 36L289 62C276 55 253 45 228 45C202 45 169 60 169 141V397H276C289 405 292 426 282 437H169V574L155 576L90 509V437H45L17 408L21 397H90V107C90 28 125 -12 188 -12C198 -12 213 -8 230 1L298 36Z" id="g121-114"></path><glyph.data ascent="989" descent="-360" horiz-adv-x="305" vert-adv-y="305"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,3.887,0)"><path d="M257 449C165 449 37 374 37 209C37 98 119 -12 256 -12C355 -12 473 65 473 226C473 349 381 449 257 449ZM244 416C333 416 380 320 380 204C380 67 329 21 267 21C184 21 130 115 130 241C130 354 184 416 244 416Z" id="g121-109"></path><glyph.data ascent="989" descent="-360" horiz-adv-x="510" vert-adv-y="510"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,10.425,0)"><path d="M238 0V26C174 32 166 38 166 104V712C132 700 70 683 18 677V653C81 647 87 645 87 577V104C87 38 78 32 15 26V0H238Z" id="g121-106"></path><glyph.data ascent="989" descent="-360" horiz-adv-x="253" vert-adv-y="253"></glyph.data></g></svg>.</div>

Discrete Dynamics in Nature and Society

fig11

Figure 11

Figure 11: Accurate and Efficient Computations of the Greeks for Options Near Expiry Using the Black-Scholes Equations 