Simulation of jump diffusions and the pricing of options

Joe DiCesare and Don Mcleish

Insurance: Mathematics and Economics, 2008, vol. 43, issue 3, 316-326

Abstract: We present importance sampling and acceptance-rejection simulation methods for one dimensional diffusions. This effectively reduces the computation of many path functionals of general diffusions to a similar computation for the Brownian bridge. We use this approach to efficiently obtain Monte Carlo prices of path-dependent derivative securities such as Barrier and Look-back options for a CEV jump-diffusion model.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:43:y:2008:i:3:p:316-326

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