Exact Simulation Of The 3/2 Model
This 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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Volume (Year): 15 (2012)
Issue (Month): 05 ()
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References listed on IDEAS
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- Pierre L'Ecuyer & Christiane Lemieux, 2000. "Variance Reduction via Lattice Rules," Management Science, INFORMS, vol. 46(9), pages 1214-1235, September.
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- Andrey Itkin & Peter Carr, 2010. "Pricing swaps and options on quadratic variation under stochastic time change models—discrete observations case," Review of Derivatives Research, Springer, vol. 13(2), pages 141-176, July.
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