A hybrid Monte Carlo acceleration method of pricing basket options based on splitting

doi:10.1016/j.cam.2018.03.045

CORC > 上海财经大学 > 上海财经大学

	A hybrid Monte Carlo acceleration method of pricing basket options based on splitting
	Sun, Yongchao 1; Xu, Chenglong 2
刊名	JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS
	2018-11
卷号	342 页码:292-304
关键词	Monte Carlo method Basket option Conditional Monte Carlo method Importance sampling
ISSN号	0377-0427
DOI	10.1016/j.cam.2018.03.045
英文摘要	Pricing basket options has always been one of the key problems in financial engineering because of high dimensionality and low convergence rate. This paper proposes a hybrid Monte Carlo variance reduction method for pricing basket options. First, by splitting the payoff of the basket option into two parts, we can price basket options by value the two parts respectively. The first part has a closed-form expectation formula, the second part can be considered as a small probability event. To reduce variance for simulating the second part, the conditional Monte Carlo (CMC) method combined with the importance sampling(IS) method is adapted. Because these two methods are all effective to deal with small probability events. For IS method, it is a challenge to compute the optimal parameters with as little computational cost as possible. Therefore, an efficient prediction-correction(PC) iteration algorithm based on moment estimation is proposed to determine the optimal parameters in the importance sampling method. Some theoretical analyses for the existence and uniqueness of the optimal parameters in the IS method and the convergence of the PC method are also given. Numerical results show that the hybrid variance reduction method has great variance reduction effect and PC iteration algorithm can save a lot of computing costs comparing with the traditional Newton's iteration method. (C) 2018 Elsevier B.V. All rights reserved.
WOS研究方向	Mathematics
语种	英语
出版者	ELSEVIER SCIENCE BV
WOS记录号	WOS:000436904000020
内容类型	期刊论文
源URL	[http://10.2.47.112/handle/2XS4QKH4/489]
专题	上海财经大学
通讯作者	Xu, Chenglong
作者单位	1.Tongji Univ, Sch Math Sci, Shanghai 200092, Peoples R China; 2.Shanghai Univ Finance & Econ, Sch Math, Shanghai 200433, Peoples R China
推荐引用方式 GB/T 7714	Sun, Yongchao,Xu, Chenglong. A hybrid Monte Carlo acceleration method of pricing basket options based on splitting[J]. JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS,2018,342:292-304.
APA	Sun, Yongchao,&Xu, Chenglong.(2018).A hybrid Monte Carlo acceleration method of pricing basket options based on splitting.JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS,342,292-304.
MLA	Sun, Yongchao,et al."A hybrid Monte Carlo acceleration method of pricing basket options based on splitting".JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS 342(2018):292-304.