Efficient pricing of barrier options with the variance-gamma model
Efficient pricing of barrier options with the variance-gamma model
We develop an efficient Monte Carlo algorithm for pricing barrier options with the variance gamma model [fMAD98a]. After generalizing the double-gamma bridge sampling algorithm of [fAVR03a], we develop conditional bounds on the process paths and exploit these bounds toprice 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.
Monte Carlo algorithm, barrier option pricing, continuous-time monitoring, double-gamma bridge sampling algorithm, full-dimensional path sampling, variance-gamma model
0780387864
1574-1578
Avramidis, Athanassios.N.
d6c4b6b6-c0cf-4ed1-bbe1-a539937e4001
Ingalls, R.G.
113b2ebc-0512-4585-ab6d-6140a93f1fe4
Chen, C.H.
bf06ddfe-d117-4a23-b6af-17911187f1f2
Snowdon, J.L.
d1d1f619-a429-4dd4-b43a-945089b8f31e
Charnes, J.M.
3f609389-694d-4bc6-96bd-c3d594f464fe
December 2004
Avramidis, Athanassios.N.
d6c4b6b6-c0cf-4ed1-bbe1-a539937e4001
Ingalls, R.G.
113b2ebc-0512-4585-ab6d-6140a93f1fe4
Chen, C.H.
bf06ddfe-d117-4a23-b6af-17911187f1f2
Snowdon, J.L.
d1d1f619-a429-4dd4-b43a-945089b8f31e
Charnes, J.M.
3f609389-694d-4bc6-96bd-c3d594f464fe
Avramidis, Athanassios.N.
(2004)
Efficient pricing of barrier options with the variance-gamma model.
Ingalls, R.G., Chen, C.H., Snowdon, J.L. and Charnes, J.M.
(eds.)
Proceedings of the 2004 Winter Simulation Conference.
.
(doi:10.1109/WSC.2004.1371500).
Record type:
Conference or Workshop Item
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Abstract
We develop an efficient Monte Carlo algorithm for pricing barrier options with the variance gamma model [fMAD98a]. After generalizing the double-gamma bridge sampling algorithm of [fAVR03a], we develop conditional bounds on the process paths and exploit these bounds toprice 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.
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Published date: December 2004
Venue - Dates:
Proceedings of the 2004 Winter Simulation Conference, 2004-12-01
Keywords:
Monte Carlo algorithm, barrier option pricing, continuous-time monitoring, double-gamma bridge sampling algorithm, full-dimensional path sampling, variance-gamma model
Organisations:
Operational Research
Identifiers
Local EPrints ID: 55794
URI: http://eprints.soton.ac.uk/id/eprint/55794
ISBN: 0780387864
PURE UUID: fbbc76af-46cc-48be-be3f-17ca70d75bc8
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Date deposited: 06 Aug 2008
Last modified: 16 Mar 2024 03:56
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Contributors
Editor:
R.G. Ingalls
Editor:
C.H. Chen
Editor:
J.L. Snowdon
Editor:
J.M. Charnes
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