Delta, Gamma, Cross Gamma using Finite Difference Method

Delta, Gamma, Cross Gamma using Finite Difference Method

by Israr Ahmed

 

 
 

1. Calculation of the delta / gamma Greeks using Price Shocks

The First , Second and Partial Derivatives are calculated in Endur by shocking the prices up and down and using  Finite Difference Method calculations.

FormulaPnLExplainedExpansion_2

 

 

 
 

 

 

 

 

 

 

Note that in Endur there is additional complexity ( not captured in the simplified equations above) in that :

( 1 ) Endur does not divide by the Delta Shift in the Delta / Gamma calculation
( 2 ) There can be upto two different FX Conversions in the Endur calculation depending on the difference between the Deal CCY and the Curve CCY and also the delta result parameter settings.

For a more explicit expression of how Endur does the calculation of delta / gamma see this Article.

 

2. PnL Change due to price changes

When prices move the change in PnL can be explained by using the Greeks and calculating the Impact of Delta , Impact of Gamma , Impact of Cross Gamma.

 

FormulaPnLExplainedExpansion_1

 


 
 

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