A general control variate method for option pricing under Levy processes

被引:25
|
作者
Dingec, Kemal Dincer [1 ]
Hormann, Wolfgang [1 ]
机构
[1] Bogazici Univ, Dept Ind Engn, TR-34342 Bebek, Turkey
关键词
Finance; Option pricing; Levy processes; Monte Carlo simulation; Control variate; Numerical inversion; MONTE CARLO METHOD; COMPUTER METHODS; ASIAN OPTIONS; GAMMA;
D O I
10.1016/j.ejor.2012.03.046
中图分类号
C93 [管理学];
学科分类号
12 ; 1201 ; 1202 ; 120202 ;
摘要
We present a general control variate method for simulating path dependent options under Levy processes. It is based on fast numerical inversion of the cumulative distribution functions and exploits the strong correlation of the payoff of the original option and the payoff of a similar option under geometric Brownian motion. The method is applicable for all types of Levy processes for which the probability density function of the increments is available in closed form. Numerical experiments confirm that our method achieves considerable variance reduction for different options and Levy processes. We present the applications of our general approach for Asian, lookback and barrier options under variance gamma, normal inverse Gaussian, generalized hyperbolic and Meixner processes. (C) 2012 Elsevier B.V. All rights reserved.
引用
收藏
页码:368 / 377
页数:10
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