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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

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  • $\begingroup$ How are you defining and calculating your gamma? $\endgroup$ Commented Nov 23, 2021 at 18:34
  • $\begingroup$ Can you add a bit more about which kind of barrier you're looking at? $\endgroup$
    – KT8
    Commented 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. $\endgroup$ Commented Nov 23, 2021 at 19:42
  • $\begingroup$ What is huag vba code? Could you please be more specific, especially with your gamma calculations? $\endgroup$ Commented Nov 23, 2021 at 19:47
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    $\begingroup$ I think OP means code from Espen Haug's book. $\endgroup$
    – user34971
    Commented Nov 23, 2021 at 20:30

2 Answers 2

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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.

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    $\begingroup$ 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
    Commented Nov 23, 2021 at 22:55
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it had to do with dS being too small. After changing dS from .0001 to .01 the scattered plots went away

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    $\begingroup$ Thx for the update but your answer looks like confirmation of @PC1's answer rather than a separate answer. $\endgroup$
    – Alper
    Commented 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 $\endgroup$ Commented 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
    Commented Oct 12, 2022 at 23:09

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