Delta of an Option at a future Time using MC

balajian · July 18th, 2007, 10:29 am

I want to find delta for a basket option at future time points using Monte Carlo. let t(0) be the initial time ,t(1) and t(2) are intermediate time points and t(4) is the expiry time. One way to do this is generate say 1000 paths using GBM.For all the underlying values at the intermediate time t(1) (1000 vectors), run monte carlo simulations and calculate deltas(using likelihood ratio method) and average it out. The same method is to be used for t(2).Is there a better way of achieving this?

amit7ul · July 19th, 2007, 6:52 am

delta makes sense when one knows the spot, otherwise what will you calculate your price sensitivity with respect to.any ways i guess you would have to take one path at a time then as you know the spot, you can assume a distribution calculate delta with adjusted time and so on.