Variance reduction for simulated diffusions using control variates extracted from state space evaluations

Authors:
Fredrik A. Dahl
Affiliations:
Norwegian Defence Research Establishment (FFI), P.O. Box 25, 2027 Kjeller, Norway
Venue:
Applied Numerical Mathematics
Year:
2002

Citing 3
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Control variate remedies

Operations Research
Stochastic differential equations (3rd ed.): an introduction with applications

Stochastic differential equations (3rd ed.): an introduction with applications
Variance reduction for simulated diffusions

SIAM Journal on Applied Mathematics

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Abstract

We develop a method for reducing variance in Monte Carlo simulation of expected terminal payoff for diffusions. The algorithm works by extracting a control variate from the simulated path, using an approximate solution to the boundary value problem in question. The algorithm is applied successfully to an example problem.