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Efficient pricing of barrier options with the variance-gamma model

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.) At Proceedings of the 2004 Winter Simulation Conference. , pp. 1574-1578. (doi:10.1109/WSC.2004.1371500).

Record type: Conference or Workshop Item (Other)

Abstract

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.

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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

Catalogue record

Date deposited: 06 Aug 2008
Last modified: 17 Jul 2017 14:32

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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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