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Exact Simulation of the 3/2 Model

  • Jan Baldeaux

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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Paper provided by in its series Papers with number 1105.3297.

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Date of creation: May 2011
Date of revision: May 2011
Handle: RePEc:arx:papers:1105.3297
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