scientific article; zbMATH DE number 1069624
The authors present an application of Monte Carlo methods for the valuation of contingent claims in stochastic volatility models. In such models, the primitive risky asset price process is driven by a bivariate diffusion. Therefore, even for expectations depending only on the terminal value of the process, deterministic methods based on the discretization of the partial differential equation satisfied by the expectation to be computed are time-consuming. For some path-dependent expectations, deterministic methods can still be used by introducing a new state variable and therefore the dimensionality of the problem is increased [see \textit{G. C. Barles}, \textit{C. Daher} and \textit{M. Romano} (1990)]. They focus on the importance sampling technique. Intuitively, this technique consists in driving the process (via a change in the drift coefficient) to the region of high contribution to the required expectation; Girsanov's theorem lets us put the right weight in order to compensate for the variation in the drift coefficient. The change in the drift coefficient is obtained through a preliminary approximation of the required expectation. They suggest two preliminary approximations of the expectation. The first is the large deviations approximation which appears to be very well suited to the computation of far from the money options. The second approximation is based on a small noise expansion of the stochastic volatility model around the simple Gaussian Black-Scholes model. In their application, the latter approximation also improves very significantly the precision of the Monte Carlo estimator. The article is organized as follows. Section 1 is devoted to modeling questions. The authors introduce stochastic volatility models as a natural extension of the Black-Scholes model, which lets them account for its deficiencies, and discuss the problem raised by market incompleteness. For completeness, Section 2 recalls the importance sampling variance reduction technique in Monte Carlo methods. Section 3 presents an application of the large deviations accelerated Monte Carlo estimator which involves the computation of the Riemannian metric characterized as the solution of a nonlinear differential equation. Finally, Section 4 presents an application of the small noise expansion accelerated Monte Carlo estimator. For the entire collection see [Zbl 0867.00036].
- Variance reduction for Monte Carlo simulation in a stochastic volatility environment
- scientific article; zbMATH DE number 5490661
- The weighted variance minimization in jump-diffusion stochastic volatility models
- Variance reduction for Monte Carlo methods to evaluate option prices under multi-factor stochastic volatility models
- Option pricing for stochastic volatility models: vol-of-vol expansion
- Estimation of stochastic volatility models via Monte Carlo maximum likelihood
- Efficient simulation of a multi-factor stochastic volatility model
- Estimation of realized stochastic volatility models using Hamiltonian Monte Carlo-based methods
- Sample path large deviations and optimal importance sampling for stochastic volatility models
- scientific article; zbMATH DE number 2134655 (Why is no real title available?)
- The weighted variance minimization in jump-diffusion stochastic volatility models
- scientific article; zbMATH DE number 6531373 (Why is no real title available?)
- Stochastic Volatility Estimation Using Markov Chain Simulation
- scientific article; zbMATH DE number 1253576 (Why is no real title available?)
- scientific article; zbMATH DE number 1079018 (Why is no real title available?)
- Some Numerical Methods for Rare Events Simulation and Analysis
- Variance reduction for Monte Carlo simulation in a stochastic volatility environment
- A variance reduction technique based on integral representations
- Monte Carlo Likelihood Estimation for Three Multivariate Stochastic Volatility Models
- Study of 'value' modelling efficiency in the Monte Carlo method
- Multilevel Monte Carlo simulation for the Heston stochastic volatility model
- Comparison of MCMC methods for estimating stochastic volatility models
This page was built for publication:
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q4356586)
