Re: [Quantlib-users] FD Greeks computation when the calculated NPV value is too close to the spot value

[Prasanna K. <pk...@ku...>]

I just realized that I mis-stated the question (the condition is NOT meant to skip when the computed option NPV is too close to the spot price….it is meant to skip when the underlying times the tolerance (1.0e-5) is is less than the option NPV).  Can someone please explain how this condition was arrived at OR why it is necessary?  And, if there is a way to work around this?  Thanks.

> On Jul 9, 2020, at 9:47 PM, Prasanna Katta <pk...@ku...> wrote:
> 
> Hello,
> In the European and American options test suite, there are tests for validating the computation of FD Greeks.  In the tests there is this condition:
>  "if(value > spot->value() * 1.0e-5)”
> 
> The goal of this condition seems to be to skip the computation/testing of FD greeks when the computed option NPV is too close to the spot price.   The computed greeks in this scenario have errors that are more than the acceptable tolerance.
> 
> Does this mean no analytical greeks can be computed when the option NPV is too close to the spot price?  Is there a way around this limitation?
> 
> Thanks.