Absolute diffusion process: sensitivity measures

• Author(s): Larguinho, Manuela ; Dias, José Carlos ; Braumann, Carlos A.
• Date: 2013
• Persistent ID: http://hdl.handle.net/10174/10541
• Origin: Repositório Científico da Universidade de Évora
• Subject(s): Absolute diffusion process; sensitivity measures; European options
• Document Type: Part of book or chapter of book
• Language: Portuguese

Description

The constant elasticity of variance (CEV) model of Cox (Notes on Option Pricing I: Constant Elasticity of Variance Diffusions, Working paper, Stanford University (1975)) captures the implied volatility smile that is similar to volatility curves observed in practice. The diffusion process has been used for pricing several financial option contracts. In this paper we present the analytical expressions of sensitivity measures for the absolute diffusion process, commonly known as Greeks, and we analyse numerically the behavior of the measures for European options under the CEV model.