Efficient Monte Carlo Barrier Option Pricing When the Underlying Security Price Follows a Jump-Diffusion Process
Author | : Sheldon Ross |
Publisher | : |
Total Pages | : |
Release | : 2013 |
ISBN-10 | : OCLC:1308971715 |
ISBN-13 | : |
Rating | : 4/5 ( Downloads) |
Download or read book Efficient Monte Carlo Barrier Option Pricing When the Underlying Security Price Follows a Jump-Diffusion Process written by Sheldon Ross and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We present efficient simulation procedures for pricing barrier options when the underlying security price follows a geometric Brownian motion with jumps. Metwally and Atiya [2002] developed a simulation approach for pricing knock-out options in the same setting, but no variance reduction was introduced. We improve upon Metwally and Atiya's method by innovative applications of well-known variance reduction techniques. We also show how to use simulation to price knock-in options. Numerical examples show that our proposed Monte Carlo procedures lead to substantial variance reduction as well as a reduction in computing time.