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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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Author Info

  • MARK JOSHI

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

  • ROBERT TANG

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

Abstract

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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Bibliographic Info

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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Related research

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, arXiv.org, revised Dec 2012.

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