Exact Simulation of the 3/2 Model

Details Exact Simulation of the 3/2 Model Exact Simulation of the 3/2 Model

2011-05-17

arxiv.org/abs/1105.3297v2

Economy

Quantitative Finance

Computational Finance

17 pages

Scientific paper

This paper discusses the exact simulation of the stock price process underlying the 3/2 model. Using a result derived by Craddock and Lennox using Lie Symmetry Analysis, we adapt the Broadie-Kaya algorithm for the simulation of affine processes to the 3/2 model. We also discuss variance reduction techniques and find that conditional Monte Carlo techniques combined with quasi-Monte Carlo point sets result in significant variance reductions.

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