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Pricing And Deltas Of Discretely-Monitored Barrier Options Using Stratified Sampling On The Hitting-Times To The Barrier


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    (Centre for Actuarial Studies, University of Melbourne, Victoria, VIC3010, Australia)


    (Centre for Actuarial Studies, University of Melbourne, Victoria, VIC3010, Australia)


We develop new Monte Carlo techniques based on stratifying the stock's hitting-times to the barrier for the pricing and Delta calculations of discretely-monitored barrier options using the Black-Scholes model. We include a new algorithm for sampling an Inverse Gaussian random variable such that the sampling is restricted to a subset of the sample space. We compare our new methods to existing Monte Carlo methods and find that they can substantially improve convergence speeds.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

Volume (Year): 13 (2010)
Issue (Month): 05 ()
Pages: 717-750

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Handle: RePEc:wsi:ijtafx:v:13:y:2010:i:05:p:717-750

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Keywords: First-hitting time; passage times; hitting-times; barrier; discretely-monitored; inverse Gaussian; stratified sampling; Monte-Carlo;


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Cited by:
  1. Nico Achtsis & Ronald Cools & Dirk Nuyens, 2011. "Conditional sampling for barrier option pricing under the LT method," Papers 1111.4808,, revised Dec 2012.


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