Journal of Energy Markets

Risk.net

Computation of Greeks in multifactor models with applications to power and commodity markets

Fred Espen Benth, Giulia Di Nunno and Asma Khedher

ABSTRACT

We study the computation of the Greeks of options written on assets modeled by multifactor dynamics. For this purpose, we apply the conditional density method, for which knowledge of the density of one factor is sufficient to derive expressions for the Greeks without involving any differentiation of the payoff function. Several examples are given in applications to power and commodity markets, including numerical examples.