Sensitivity Analysis of Long-Term Cash Flows

Abstract

In this article, a sensitivity analysis of long-term cash flows with respect to perturbations in the underlying process is presented. For this purpose, we employ the martingale extraction through which a pricing operator is transformed into what is easier to address. The method of Fournie et al. will be combined with the martingale extraction. We prove that the sensitivity of long-term cash flows can be represented in a simple form.