Simulation in financial engineering: stopping simulated paths early
Proceedings of the 33nd conference on Winter simulation
A new efficient simulation strategy for pricing path-dependent options
Proceedings of the 38th conference on Winter simulation
Efficient suboptimal rare-event simulation
Proceedings of the 39th conference on Winter simulation: 40 years! The best is yet to come
A Wiener measure theoretic approach to pricing extreme-value-related derivatives
Winter Simulation Conference
Sensitivity analysis for barrier options
Winter Simulation Conference
Original article: Using the continuous price as control variate for discretely monitored options
Mathematics and Computers in Simulation
| Hi-index | 0.00 |
Pricing financial options often requires Monte Carlo methods. One particular case is that of barrier options, whose payoff may be zero depending on whether or not an underlying asset crosses a barrier during the life of the option. This paper develops variance reduction techniques that take advantage of the special structure of barrier options, and are appropriate for general simulation problems with similar structure. We use a change of measure at each step of the simulation to reduce the variance arising from the possibility of a barrier crossing at each monitoring date. The paper details the theoretical underpinnings of this method, and evaluates alternative implementations when exact distributions conditional on one-step survival are available and when not available. When these one-step conditional distributions are unavailable, we introduce algorithms that combine change of measure and estimation of conditional probabilities simultaneously. The methods proposed are more generally applicable to terminal reward problems on Markov processes with absorbing states.