Exact Simulation of the 3/2 Model
AbstractThis paper discusses the exact simulation of the stock price process underlying the 3/2 model. Using a result derived by Craddock and Lennox using Lie Symmetry Analysis, we adapt the Broadie-Kaya algorithm for the simulation of affine processes to the 3/2 model. We also discuss variance reduction techniques and find that conditional Monte Carlo techniques combined with quasi-Monte Carlo point sets result in significant variance reductions.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1105.3297.
Date of creation: May 2011
Date of revision: May 2011
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Web page: http://arxiv.org/
Other versions of this item:
- Jan Baldeaux, 2012. "Exact Simulation Of The 3/2 Model," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 15(05), pages 1250032-1-1.
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- Jan Baldeaux & Dale Roberts, 2012.
"Quasi-Monte Carol Methods for the Heston Model,"
Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney
307, Quantitative Finance Research Centre, University of Technology, Sydney.
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