Monte Carlo Option Pricing
The 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.
Volume (Year): (2004)
Issue (Month): 61 (Julio-Diciembre)
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- 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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