Recent advances in simulation for security pricing (1995)

Authors:
Phelim Boyle;Mark Broadie;Paul Glasserman
Affiliations:
University of Waterloo, Waterloo, Ontario;Columbia Business School, New York, NY;Columbia Business School, New York, NY
Venue:
Proceedings of the 39th conference on Winter simulation: 40 years! The best is yet to come
Year:
2007

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Abstract

Computational methods play an important role in modern finance. Through the theory of arbitrage-free pricing, the price of a derivative security can be expressed as the expected value of its payouts under a particular probability measure. The resulting integral becomes quite complicated if there are several state variables or if payouts are path-dependent. Simulation has proved to be a valuable tool for these calculations. This paper summarizes some of the recent applications and developments of the Monte Carlo method to security pricing problems.