4
$\begingroup$

Is this to be expected or is there something wrong with the model?

I am getting scattered gamma plots for all types of barriers like U&O, D&I, etc enter image description here


However a basic vanilla options has a smooth gamma plot. enter image description here

$\endgroup$
6
  • $\begingroup$ How are you defining and calculating your gamma? $\endgroup$ Nov 23, 2021 at 18:34
  • $\begingroup$ Can you add a bit more about which kind of barrier you're looking at? $\endgroup$
    – KT8
    Nov 23, 2021 at 18:35
  • $\begingroup$ Using Huag vba code. The barrier was standard barrier up and out call. gamma is scattered for u&o, d&o. $\endgroup$ Nov 23, 2021 at 19:42
  • $\begingroup$ What is huag vba code? Could you please be more specific, especially with your gamma calculations? $\endgroup$ Nov 23, 2021 at 19:47
  • 3
    $\begingroup$ I think OP means code from Espen Haug's book. $\endgroup$
    – user34971
    Nov 23, 2021 at 20:30

2 Answers 2

4
$\begingroup$

Your gamma seems to be "quantized" like if your calculation happens to be at the machine limit in term of precision. Maybe you aren't using a "dS" large enough if you compute derivatives using a finite difference approach.

Try increase the step for your numerical calculation.

$\endgroup$
1
  • 2
    $\begingroup$ I second that. Look at the formulas for Greeks, it's likely bump and reprice and the same problem as shown in this answer. $\endgroup$
    – AKdemy
    Nov 23, 2021 at 22:55
0
$\begingroup$

it had to do with dS being too small. After changing dS from .0001 to .01 the scattered plots went away

$\endgroup$
3
  • 2
    $\begingroup$ Thx for the update but your answer looks like confirmation of @PC1's answer rather than a separate answer. $\endgroup$
    – Alper
    Dec 13, 2021 at 19:08
  • $\begingroup$ it was a coincidence. if you look at the timestamps in made my post before pc1 but its good to know we found the same solution $\endgroup$ Oct 12, 2022 at 20:57
  • $\begingroup$ It might still have been a coincidence of course if you did not see it, but you are wrong about your answer being earlier than @PC1’s; that answer has been posted in November 2021 while yours has been posted in December 2021. $\endgroup$
    – Alper
    Oct 12, 2022 at 23:09

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Not the answer you're looking for? Browse other questions tagged or ask your own question.