Efficient pricing of barrier options with the variance-gamma model

Avramidis, Athanassios.N. (2004) Efficient pricing of barrier options with the variance-gamma model. Proceedings of the 2004 Winter Simulation Conference Institute of Electrical and Electronics Engineers Inc, 1574-1578. (doi:10.1109/WSC.2004.1371500).


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Original Publication URL: http://dx.doi.org/10.1109/WSC.2004.1371500


We develop an efficient Monte Carlo algorithm for pricing
barrier options with the variance gamma model \cite{fMAD98a}.
After generalizing the double-gamma bridge sampling algorithm
of \citeN{fAVR03a}, we develop conditional
bounds on the process paths and exploit these bounds to
price barrier options.
The algorithm's efficiency stems from sampling the process
paths up to a random resolution that is usually much coarser
than the original path resolution.
We obtain unbiased estimators, including the case
of continuous-time monitoring of the barrier crossing.
Our numerical examples show large efficiency gain
relative to full-dimensional path sampling.

Item Type: Conference or Workshop Item (UNSPECIFIED)
Digital Object Identifier (DOI): doi:10.1109/WSC.2004.1371500
ISBNs: 0780387864 (hardback)
Related URLs:
Keywords: Monte Carlo algorithm, barrier option pricing, continuous-time monitoring, double-gamma bridge sampling algorithm, full-dimensional path sampling, variance-gamma model
Subjects: Q Science > QA Mathematics
Divisions : University Structure - Pre August 2011 > School of Mathematics > Operational Research
ePrint ID: 55794
Accepted Date and Publication Date:
December 2004Published
Date Deposited: 06 Aug 2008
Last Modified: 31 Mar 2016 12:36
URI: http://eprints.soton.ac.uk/id/eprint/55794

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