Least-square-based control variate method for pricing options under general factor models

doi:10.1080/00207160.2018.1442925

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	Least-square-based control variate method for pricing options under general factor models
	Xu, Chenglong; Ma, Junmei; Tian, Yiming
刊名	INTERNATIONAL JOURNAL OF COMPUTER MATHEMATICS
	2019-06-03
卷号	96 期号:6 页码:1121-1136
关键词	Control variate method least-square method Monte Carlo simulation stochastic volatility stochastic interest rate
ISSN号	0020-7160
DOI	10.1080/00207160.2018.1442925
英文摘要	This paper proposes a class of simple but efficient control variate method for pricing derivatives under multiple factor models including stochastic volatility and stochastic interest rate model. The control variate can help us to obviously reduce the error of Monte Carlo simulation. Briefly speaking, we construct a virtual asset with deterministic volatility and deterministic interest rate which has high correlation with the original underlying asset based on the method of least square, and use derivative written on the virtual asset as control variate in pricing derivative written on the original underlying asset. Some theoretic results can help us to understand the mechanism of a control variate. Numerical examples show that simulation error is significantly reduced by our method. The advantage of our method is that it has no analytic form request for the underlying asset model, so the method is flexible to deal with and broadly applicable for derivative pricing.
WOS研究方向	Mathematics
语种	英语
出版者	TAYLOR & FRANCIS LTD
WOS记录号	WOS:000462172900003
内容类型	期刊论文
源URL	[http://10.2.47.112/handle/2XS4QKH4/222]
专题	上海财经大学
通讯作者	Xu, Chenglong
作者单位	Shanghai Univ Finance & Econ, Sch Math, Shanghai 200433, Peoples R China
推荐引用方式 GB/T 7714	Xu, Chenglong,Ma, Junmei,Tian, Yiming. Least-square-based control variate method for pricing options under general factor models[J]. INTERNATIONAL JOURNAL OF COMPUTER MATHEMATICS,2019,96(6):1121-1136.
APA	Xu, Chenglong,Ma, Junmei,&Tian, Yiming.(2019).Least-square-based control variate method for pricing options under general factor models.INTERNATIONAL JOURNAL OF COMPUTER MATHEMATICS,96(6),1121-1136.
MLA	Xu, Chenglong,et al."Least-square-based control variate method for pricing options under general factor models".INTERNATIONAL JOURNAL OF COMPUTER MATHEMATICS 96.6(2019):1121-1136.