The Second Order Price Sensitivities for Markets in a Crisis

Risk management in financial derivative markets requires inevitably the calculation of price sensitivities. The literature contains an abundant amount of research works on these important values. Most of these works consider the well-known Black and Scholes model where the volatility is assumed to be constant. Some works that attempt to deal with markets that are affected by financial crisis have appeared recently. However, none of these papers deal with the calculation of the price sensitivities of the second order. Providing the second order price sensitivities is an important issue in financial risk management because the investor can determine whether or not each source of risk is varying at an increasing rate. This paper treats the computation of the second order prices sensitivities for a market in crisis. The underlying second order price sensitivities are derived explicitly. The obtained formulas are expected to improve on the accuracy of the hedging strategies during a financial crunch