Article ID Journal Published Year Pages File Type
5076725 Insurance: Mathematics and Economics 2013 14 Pages PDF
Abstract
A new, very efficient and fairly simple simulation method for European basket and Asian options under the geometric Brownian motion assumption is presented. It is based on a new control variate method that uses the closed form of the expected payoff conditional on the assumption that the geometric average of all prices is larger than the strike price. The combination of that new control variate with conditional Monte Carlo and quadratic control variates leads to the newly proposed algorithm. Numerical experiments show that the new algorithm is more efficient than the classical control variate method using the geometric price.
Related Topics
Physical Sciences and Engineering Mathematics Statistics and Probability
Authors
, ,