Is this to be expected or is there something wrong with the model?
I am getting scattered gamma plots for all types of barriers like U&O, D&I, etc
However a basic vanilla options has a smooth gamma plot.
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vanilla_skies
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How are you defining and calculating your gamma? – Kermittfrog Nov 23 '21 at 18:34
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Can you add a bit more about which kind of barrier you're looking at? – KT8 Nov 23 '21 at 18:35
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Using Huag vba code. The barrier was standard barrier up and out call. gamma is scattered for u&o, d&o. – vanilla_skies Nov 23 '21 at 19:42
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What is huag vba code? Could you please be more specific, especially with your gamma calculations? – Kermittfrog Nov 23 '21 at 19:47
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3I think OP means code from Espen Haug's book. – Nov 23 '21 at 20:30
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I don’t think it’s gamma itself, it’s likely to be a limit in your discretization scheme, which makes second order derivatives less precise – Gabriele Pompa Dec 13 '21 at 19:08
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Your gamma seems to be "quantized" like if your calculation happens to be at the machine limit in term of precision. Maybe you aren't using a "dS" large enough if you compute derivatives using a finite difference approach.
Try increase the step for your numerical calculation.
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2I second that. Look at the formulas for Greeks, it's likely bump and reprice and the same problem as shown in this answer. – AKdemy Nov 23 '21 at 22:55
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it had to do with dS being too small. After changing dS from .0001 to .01 the scattered plots went away
vanilla_skies
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2Thx for the update but your answer looks like confirmation of @PC1's answer rather than a separate answer. – Alper Dec 13 '21 at 19:08
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it was a coincidence. if you look at the timestamps in made my post before pc1 but its good to know we found the same solution – vanilla_skies Oct 12 '22 at 20:57
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It might still have been a coincidence of course if you did not see it, but you are wrong about your answer being earlier than @PC1’s; that answer has been posted in November 2021 while yours has been posted in December 2021. – Alper Oct 12 '22 at 23:09