Finite element based Monte Carlo simulation of options on Lévy driven assets

Patrik Karlsson
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Patrik Karlsson: Department of Economics, Lund University, Box 7082, SE-22007 Lund, Sweden2Quantitative Strategy and Analytics, SEB, Kungstradgardsgatan 8, SE-106 40 Stockholm, Sweden

International Journal of Financial Engineering (IJFE), 2018, vol. 05, issue 01, 1-23

Abstract: This paper extends the simulation algorithm by Andreasen and Huge (2011) to the simulation of option prices and deltas on Lévy driven assets where the simulation is performed relying on the inverse transition matrix of the discretized partial integro differential equation (PIDE). We demonstrate how one can get accurate prices and deltas of European options on VG and CGMY via Monte Carlo simulations.

Keywords: CGMY model; finite element method; Monte Carlo simulation; Lévy processes; VG model (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1142/S2424786318500135

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