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The Reconciliation of the Smith's and Jarrow and Rudd's Option Sensitivity Formulae: A Teaching Note
Author(s) -
Choi Daniel F. S.,
Ward Charles W. R.
Publication year - 1989
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1989.tb00356.x
Subject(s) - identity (music) , sensitivity (control systems) , mathematical economics , economics , philosophy , aesthetics , electronic engineering , engineering
Smith and Jarrow and Rudd have presented different expressions for the same option sensitivities. With the mathematical derivations omitted, the apparent differences have never been explained before. This note points out that an important identity can reconcile the differences. The usefulness of the identity is further explored.