"Vibrato" Monte Carlo for computing Greeks
M. Giles (University of Oxford, UK)
In computational finance, the pathwise sensitivity approach is a very effective technique for the Monte Carlo estimation of first order derivatives known as Greeks. However, it relies on the differentiability of the financial payoff function. In this paper I will present a new idea which avoids this restriction by suitably combining pathwise sensitivity with the alternative Likelihood Ratio Method, giving a hybrid method which is both efficient and generally applicable.