Dresden 2017 – wissenschaftliches Programm

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SOE: Fachverband Physik sozio-ökonomischer Systeme

SOE 3: Financial Models and Risk Management I

SOE 3.4: Vortrag

Montag, 20. März 2017, 12:00–12:15, GÖR 226

Improved Variance Reduced Monte-Carlo Simulation of in-the-Money Options — •Armin Müller — FernUniversität in Hagen, Lehrstuhl für angewandte Statistik und Methoden der empirischen Sozialforschung, Germany

Pricing derivatives with Monte-Carlo simulations involves standard errors that typically decrease at a rate proportional to N^−0.5 where N is the sample size. Several approaches have been discussed to reduce the empirical variance for a given sample size. This talk presents a joint application of the put-call-parity approach and importance sampling to variance reduced option pricing. For this purpose, we examine non-path-dependent and path-dependent options. For European options, we observe dramatic variance reduction of several orders of magnitude, especially for in-the-money options. Also for arithmetic Asian options, we achieve a significant variance reduction.