English, Article edition: EXAMINATION OF SELECTED IMPROVEMENT APPROACHES TO MONTE CARLO SIMULATION IN OPTION PRICING Tomáš Tichý

User activity

Share to:
 
Bookmark: http://trove.nla.gov.au/version/121290
Physical Description
  • article
Language
  • English

Edition details

Title
  • EXAMINATION OF SELECTED IMPROVEMENT APPROACHES TO MONTE CARLO SIMULATION IN OPTION PRICING
Author
  • Tomáš Tichý
Physical Description
  • article
Notes
  • In general, there exist many ways to detect the fair value of financial derivatives. However, each of them is suitable for different purposes. For example, when the payoff function is not very simple or the underlying process is too complex, the approach of Monte Carlo simulation can be useful. Unfortunately, the plain Monte Carlo simulation needs a very high number of independent paths to get reliable results. It is the reason why an improvement of the plain approach should be applied to decrease the number of paths required in order to get reliable results. In this paper we study more closely several such approaches and examine their potential of increasing the efficiency. To be more exact, we apply the antithetic variates method and stratified sampling approaches, including their combinations in order to get the fair price of a plain vanilla call. We consider three distinct underlying processes: geometric Brownian motion, variance gamma model and normal inverse Gaussian model. We also verify the confidence interval for the option price. We did not find any improvements of examined methods for complex processes considering the definition via two or more independent random numbers. However, if the required accuracy is very high, it might be useful to apply the stratification to the distribution function of the complex process.
  • variance reduction methods, variance gamma model, Simulation Monte Carlo, options, option pricing, normal inverse Gaussian model, Lévy process, confidence interval, Black and Scholes model
  • RePEc:prg:jnlpol:v:2008:y:2008:i:6:id:663
Language
  • English
Contributed by
OAIster

Get this edition

Other links

  • Set up My libraries

    How do I set up "My libraries"?

    In order to set up a list of libraries that you have access to, you must first login or sign up. Then set up a personal list of libraries from your profile page by clicking on your user name at the top right of any screen.

  • All (1)
  • Unknown (1)
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.

User activity


e.g. test cricket, Perth (WA), "Parkes, Henry"

Separate different tags with a comma. To include a comma in your tag, surround the tag with double quotes.

Be the first to add a tag for this edition

Be the first to add this to a list

Comments and reviews

What are comments? Add a comment

No user comments or reviews for this version

Add a comment