Generating Quasi-Random Paths for Stochastic Processes

DOI10.1137/S0036144597317959MaRDI QIDQ4229428zbMATH OpenFDO

Authors William J. Morokoff

Publication date 22 February 1999

Published in SIAM Review (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1137/S0036144597317959

zbMATH Keywords

computational financediscrete sample pathsgeneralized Brownian bridgeparticle reorderingquasi-Monte Carlo methodsquasi-random sequencesstochastic process simulationvariance reduction

Mathematics Subject Classification ID

Stochastic processes (60G99) Monte Carlo methods (65C05) Probabilistic methods, stochastic differential equations (65C99) Numerical methods (including Monte Carlo methods) (91G60)

Review text

The paper addresses the question of how to use quasi-Monte Carlo methods to improve the simulation of stochastic processes numerically. Two general procedures, viz. the generalized Brownian bridge and the particle reordering, have been developed for generating discrete sample paths associated with a stochastic process using quasi-random sequences. The main conclusions show that even for nominally high-dimensional integration problems arising from discrete stochastic methods, quasi-Monte Carlo methods can improve the computation time ranging from a factor of three (when the Brownian bridge discretization is used in conjunction with the quadratic term of a Taylor series as a control variate) to a factor of ten (comparing the Brownian bridge approach with antithetic random Monte Carlo). The best method and the degree of success depends on the nature of the integrand. The two techniques are applied to a problem from finance, viz. the valuation of a 30-year bond with monthly coupon payments assuming a mean reverting stochastic interest rate. When expressed as an integral, this problem is nominally 360 dimensional. The analysis of the integrand explains the effectiveness of the quasi-random sequences on this high-dimensional problem and suggests methods of variance reduction which can be used in conjunction with the quasi-random sequences.

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Cited in

(18)

• Optimal prediction for Hamiltonian partial differential equations
• Quadrature formulas for the Wiener measure
• The Brownian bridge does not offer a consistent advantage in quasi-Monte Carlo integration
• The effective dimension and quasi-Monte Carlo integration
• Quasi-Monte Carlo method in population genetics parameter estimation
• Valuing convertible bonds based on LSRQM method
• Quasi-random numbers for copula models
• Space-time adaptive finite difference method for European multi-asset options
• New Brownian bridge construction in quasi-Monte Carlo methods for computational finance
• Probabilistically induced domain decomposition methods for elliptic boundary-value problems
• Comparison of Point Sets and Sequences for Quasi-Monte Carlo and for Random Number Generation
• How do path generation methods affect the accuracy of quasi-Monte Carlo methods for problems in finance?
• Quasi-Monte Carlo simulation of random walks in finance
• The AEP algorithm for the fast computation of the distribution of the sum of dependent random variables
• Brownian path generation and polynomial chaos
• An algorithm for probabilistic solution of parabolic PDEs
• On the tractability of the Brownian bridge algorithm
• Quasi-Monte Carlo methods with applications in finance

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