Efficient basket Monte Carlo option pricing via a simple analytical approximation

Korn R., Zeytun S.

JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS, cilt.243, ss.48-59, 2013 (SCI-Expanded) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 243
  • Basım Tarihi: 2013
  • Doi Numarası: 10.1016/j.cam.2012.10.035
  • Dergi Adı: JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS
  • Derginin Tarandığı İndeksler: Science Citation Index Expanded (SCI-EXPANDED), Scopus
  • Sayfa Sayıları: ss.48-59
  • Anahtar Kelimeler: Options based on arithmetic averages, Sum of log-normal distributions, Monte Carlo method, Black-Scholes model, Variance reduction methods, BOUNDS
  • Orta Doğu Teknik Üniversitesi Adresli: Evet

Özet

We present a new valuation method for basket options that is based on a limiting approximation of the arithmetic mean by the geometric mean. Using this approximation combined with a new analytical pricing formula for an approximating geometric mean-based option as a control variate, excellent performance for Monte Carlo pricing in a control variate setting is obtained. (C) 2012 Elsevier B.V. All rights reserved.