A central limit theorem for Latin hypercube sampling with dependence and application to exotic basket option pricing

DOI10.1142/S021902491250046XMaRDI QIDQ4902541zbMATH OpenFDO

Authors Christoph Aistleitner, Markus Hofer, Robert F. Tichy

Publication date 16 January 2013

Published in International Journal of Theoretical and Applied Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1311.4698

zbMATH Keywords

Monte CarloLatin hypercube samplingoption pricingvariance gammaprobabilistic methodsvariance reduction techniques

Mathematics Subject Classification ID

Monte Carlo methods (65C05) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Central limit and other weak theorems (60F05)

Abstract: We consider the problem of estimating $mathbbE[f(U^1,ldots,U^d)]$, where $(U^1,ldots,U^d)$ denotes a random vector with uniformly distributed marginals. In general, Latin hypercube sampling (LHS) is a powerful tool for solving this kind of high-dimensional numerical integration problem. In the case of dependent components of the random vector $(U^1,ldots,U^d)$ one can achieve more accurate results by using Latin hypercube sampling with dependence (LHSD). We state a central limit theorem for the $d$-dimensional LHSD estimator, by this means generalising a result of Packham and Schmidt. Furthermore we give conditions on the function $f$ and the distribution of $(U^1,ldots,U^d)$ under which a reduction of variance can be achieved. Finally we compare the effectiveness of Monte Carlo and LHSD estimators numerically in exotic basket option pricing problems.

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Cites work

• scientific article; zbMATH DE number 1999206 (Why is no real title available?)
• A Comparison of Three Methods for Selecting Values of Input Variables in the Analysis of Output from a Computer Code
• Large Sample Properties of Simulations Using Latin Hypercube Sampling
• Latin hypercube sampling with dependence and applications in finance
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Cited in

(7)

• Comparing M/G/1 queue estimators in Monte Carlo simulation through the tested generator ``getRDS and the proposed ``getLHS using variance reduction
• Applications of the central limit theorem for pricing cliquet-style options
• Optimal bounds for integrals with respect to copulas and applications
• Latin hypercube sampling with dependence and applications in finance
• A new class of continuous Bayesian networks
• Large Sample Properties of Simulations Using Latin Hypercube Sampling
• Consistency of randomized integration methods

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