A Monte Carlo algorithm for the extrema of tempered stable processes
From MaRDI portal
Abstract: We develop a novel Monte Carlo algorithm for the vector consisting of the supremum, the time at which the supremum is attained and the position at a given (constant) time of an exponentially tempered L'evy process. The algorithm, based on the increments of the process without tempering, converges geometrically fast (as a function of the computational cost) for discontinuous and locally Lipschitz functions of the vector. We prove that the corresponding multilevel Monte Carlo estimator has optimal computational complexity (i.e. of order if the mean squared error is at most ) and provide its central limit theorem (CLT). Using the CLT we construct confidence intervals for barrier option prices and various risk measures based on drawdown under the tempered stable (CGMY) model calibrated/estimated on real-world data. We provide non-asymptotic and asymptotic comparisons of our algorithm with existing approximations, leading to rule-of-thumb guidelines for users to the best method for a given set of parameters. We illustrate the performance of the algorithm with numerical examples.
Recommendations
Cites work
- A general method for debiasing a Monte Carlo estimator
- A Method for Simulating Stable Random Variables
- Asymptotics for exponential Lévy processes and their volatility smile: survey and new results
- Central limit theorem for the multilevel Monte Carlo Euler method
- Central limit theorems for multilevel Monte Carlo methods
- Exotic options under Lévy models: an overview
- Fast and accurate pricing of barrier options under Lévy processes
- Financial Modelling with Jump Processes
- Geometrically convergent simulation of the extrema of Lévy processes
- scientific article; zbMATH DE number 1713116 (Why is no real title available?)
- scientific article; zbMATH DE number 3159046 (Why is no real title available?)
- scientific article; zbMATH DE number 1987559 (Why is no real title available?)
- scientific article; zbMATH DE number 1999206 (Why is no real title available?)
- scientific article; zbMATH DE number 6283558 (Why is no real title available?)
- Maximum drawdown insurance
- Monte Carlo option pricing for tempered stable (CGMY) processes
- Multilevel Monte Carlo for exponential Lévy models
- On future drawdowns of Lévy processes
- On magnitude, asymptotics and duration of drawdowns for Lévy models
- On simulation of tempered stable random variates
- On the valuation of constant barrier options under spectrally one-sided exponential Lévy models and Carr's approximation for American puts.
- Rejection sampling for tempered Lévy processes
- Ruin probabilities and optimal investment when the stock price follows an exponential Lévy process
- Ruin probabilities and overshoots for general Lévy insurance risk processes
- Ruin Probabilities for Levy Processes with Mixed-Exponential Negative Jumps
- Simulation of Tempered Stable Lévy Bridges and Its Applications
- Simulation of the drawdown and its duration in Lévy models via stick-breaking Gaussian approximation
- Small-time asymptotics of stopped Lévy bridges and simulation schemes with controlled bias
- The convex minorant of a Lévy process
- Unbiased estimation with square root convergence for SDE models
- Unbiased estimators and multilevel Monte Carlo
- Zooming in on a Lévy process at its supremum
- Zooming-in on a Lévy process: failure to observe threshold exceedance over a dense grid
This page was built for publication: A Monte Carlo algorithm for the extrema of tempered stable processes
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q6198071)
