Quasi-Monte Carlo methods for the Heston model

Details Quasi-Monte Carlo methods for the Heston model Quasi-Monte Carlo methods for the Heston model

2012-02-15

arxiv.org/abs/1202.3217v1

Economy

Quantitative Finance

Computational Finance

20 pages

Scientific paper

In this paper, we discuss the application of quasi-Monte Carlo methods to the Heston model. We base our algorithms on the Broadie-Kaya algorithm, an exact simulation scheme for the Heston model. As the joint transition densities are not available in closed-form, the Linear Transformation method due to Imai and Tan, a popular and widely applicable method to improve the effectiveness of quasi-Monte Carlo methods, cannot be employed in the context of path-dependent options when the underlying price process follows the Heston model. Consequently, we tailor quasi-Monte Carlo methods directly to the Heston model. The contributions of the paper are threefold: We firstly show how to apply quasi-Monte Carlo methods in the context of the Heston model and the SVJ model, secondly that quasi-Monte Carlo methods improve on Monte Carlo methods, and thirdly how to improve the effectiveness of quasi-Monte Carlo methods by using bridge constructions tailored to the Heston and SVJ models. Finally, we provide some extensions for computing greeks, barrier options, multidimensional and multi-asset pricing, and the 3/2 model.

Affiliated with

Also associated with

No associations

Rating

Quasi-Monte Carlo methods for the Heston model does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Quasi-Monte Carlo methods for the Heston model, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Quasi-Monte Carlo methods for the Heston model will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-556561