Efficient Monte Carlo Pricing of Basket Options

This file is part of IDEAS, which uses RePEc data

Efficient Monte Carlo Pricing of Basket Options

Author Info

P. Pellizzari (University of Venice)

Additional information is available for the following registered author(s):

Paolo Pellizzari

Abstract

Montecarlo methods can be used to price derivatives for which closed evaluation formulas are not available or difficult to derive. A drawback of the method can be its high computational cost, especially if applied to basket options, whose payoffs depend on more than one asset. This article presents two kinds of control variates to reduce variance of estimates, based on unconditional and conditional expectations of assets respectively. We apply the previous variance reduction methods to some basket options (Spread, Dual and Portfolio options), achieving in some case remarkable speed and accuracy in price estimation.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

Publisher Info
Paper provided by EconWPA in its series Finance with number 9801001.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 10 pages
Date of creation: 16 Jan 1998
Date of revision:
Handle: RePEc:wpa:wuwpfi:9801001

Note: Type of Document - Tex (OzTex for Mac); prepared on Macintosh 6100; to print on PostScript; pages: 10; figures: 1 (included)
Contact details of provider:
Web page: http://129.3.20.41

For technical questions regarding this item, or to correct its listing, contact: (EconWPA).

Other versions of this item:

Find related papers by JEL classification:
C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

References listed on IDEAS
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.:

Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September. [Downloadable!] (restricted)
Kemna, A. G. Z. & Vorst, A. C. F., 1990. "A pricing method for options based on average asset values," Journal of Banking & Finance, Elsevier, vol. 14(1), pages 113-129, March. [Downloadable!] (restricted)
Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166. [Downloadable!] (restricted)
Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June. [Downloadable!] (restricted)
Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-86, March. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, 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.)

Xia Su, 2006. "Hedging Basket Options by Using a Subset of Underlying Assets," Bonn Econ Discussion Papers bgse14_2006, University of Bonn, Germany. [Downloadable!]

Statistics

Access and download statistics

Did you know? A few items listed on IDEAS are over 2000 years old!

This page was last updated on 2008-9-4.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.