Multidimensional quasi-Monte Carlo Malliavin Greeks

DOI10.1007/S10203-011-0125-ZzbMATH Open1345.91082arXiv1103.5722OpenAlexW2151898017MaRDI QIDQ377789FDOQ377789

Authors: Nicola Cufaro Petroni, Piergiacomo Sabino 

Publication date: 7 November 2013

Published in: Decisions in Economics and Finance (Search for Journal in Brave)

Abstract: We investigate the use of Malliavin calculus in order to calculate the Greeks of multidimensional complex path-dependent options by simulation. For this purpose, we extend the formulas employed by Montero and Kohatsu-Higa to the multidimensional case. The multidimensional setting shows the convenience of the Malliavin Calculus approach over different techniques that have been previously proposed. Indeed, these techniques may be computationally expensive and do not provide flexibility for variance reduction. In contrast, the Malliavin approach exhibits a higher flexibility by providing a class of functions that return the same expected value (the Greek) with different accuracies. This versatility for variance reduction is not possible without the use of the generalized integral by part formula of Malliavin Calculus. In the multidimensional context, we find convenient formulas that permit to improve the localization technique, introduced in Fourni'e et al and reduce both the computational cost and the variance. Moreover, we show that the parameters employed for variance reduction can be obtained extit{on the flight} in the simulation. We illustrate the efficiency of the proposed procedures, coupled with the enhanced version of Quasi-Monte Carlo simulations as discussed in Sabino, for the numerical estimation of the Deltas of call, digital Asian-style and Exotic basket options with a fixed and a floating strike price in a multidimensional Black-Scholes market.

Full work available at URL: https://arxiv.org/abs/1103.5722

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zbMATH Keywords

Malliavin calculusquasi-Monte Carlo methodsGreeksrisk-management

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Stochastic calculus of variations and the Malliavin calculus (60H07) Numerical methods (including Monte Carlo methods) (91G60)

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Cited In (5)

• Malliavin Monte Carlo Greeks for jump diffusions
• Estimating multidimensional density functions using the Malliavin-Thalmaier formula
• Efficient simulation of the price and the sensitivities of basket options under time-changed Brownian motions
• Monte Carlo Evaluation of Greeks for Multidimensional Barrier and Lookback Options
• Forward or backward simulation? A comparative study

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