Monte Carlo Option Pricing
AbstractThe Monte Carlo method is applied to various cases of financial option pricing. Its performance is satisfactory in terms of accuracy when it is compared to other numerical methods. The precision of the estimates provided by Crude Monte Carlo can be improved by implementing variance reduction techniques such as antithetic variate and control variate. However, the use of these techniques implies a greater computational effort; thus, there is a trade-off between a lower variance estimator and a higher computational requirement which demands us to check not only for the accuracy of the estimator but also for its efficiency.
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Bibliographic InfoArticle provided by Universidad de Antioquia, Departamento de Economía in its journal LECTURAS DE ECONOMÍA.
Volume (Year): (2004)
Issue (Month): 61 (Julio-Diciembre)
Postal: Lecturas de Economía, Departamento de Economía, Calle 67, 53-108, Medellin 050010, Colombia.
Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Geske, Robert & Shastri, Kuldeep, 1985. "Valuation by Approximation: A Comparison of Alternative Option Valuation Techniques," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(01), pages 45-71, March.
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