A Path Integral Approach to Derivative Security Pricing: II. Numerical Methods

Details A Path Integral Approach to Derivative Security Pricing: II. Numerical Methods A Path Integral Approach to Derivative Security Pricing: II. Numerical Methods

1999-01-26

arxiv.org/abs/cond-mat/9901279v1

Physics

Condensed Matter

Statistical Mechanics

25 pages, 1 figure, submitted to International Journal of Theoretical and Applied Finance

Scientific paper

We discuss two numerical methods, based on a path integral approach described in a previous paper (I), for solving the stochastic equations underlying the financial markets: the Monte Carlo approach, and the Green function deterministic numerical method. Then, we apply the latter to some specific financial problems. In particular, we consider the pricing of a European option, a zero-coupon bond, a caplet, an American option, and a Bermudan swaption.

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