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An exact method for the sensitivity analysis of systems simulated by rejection techniques

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  • Joshi, Mark S.
  • Zhu, Dan

Abstract

We compute first- and second-order sensitivities of functions simulated by rejection techniques. The methodology is to perform a measure change on every acceptance test, so that the pathwise discontinuities resulting from the rejection decisions are removed. The change of measure is chosen to be optimal in terms of minimizing variances of the likelihood ratio terms. Applications are presented for computing Greeks of equity options with certain Le´vy-driven underlyings and to finding sensitivities of performance measures in queueing systems. The numerical results demonstrate the efficacy and speed of the method.

Suggested Citation

  • Joshi, Mark S. & Zhu, Dan, 2016. "An exact method for the sensitivity analysis of systems simulated by rejection techniques," European Journal of Operational Research, Elsevier, vol. 254(3), pages 875-888.
    • Handle: RePEc:eee:ejores:v:254:y:2016:i:3:p:875-888
    DOI: 10.1016/j.ejor.2016.04.024
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    References listed on IDEAS

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