Investment certificates pricing using a Quasi-Monte Carlo framework: Case-studies based on the Italian market

Anna Bottasso, Michelangelo Fusaro (), Pier Giuseppe Giribone and Alessio Tissone ()
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Michelangelo Fusaro: ��Quantitative Financial Analyst and AIAF/AIFIRM Member, Italy
Pier Giuseppe Giribone: Department of Economics, University of Genoa, Genoa, Italy‡Financial Engineering, BPER Banca, Modena, Italy
Alessio Tissone: ��Quantitative Financial Analyst and AIAF/AIFIRM Member, Italy

International Journal of Financial Engineering (IJFE), 2023, vol. 10, issue 03, 1-39

Abstract: The Monte Carlo method, thanks to its flexibility in designing even extremely complex payoffs, is assuming an increasingly important role in quantitative analysis. Its main limitation is the high computational cost linked to its modest speed of convergence to the fair value of the product. One of the best-known statistical techniques is to replace the random number generator with “low discrepancy†deterministic numerical sequences, producing a Quasi-Monte Carlo. Through its implementation for the analysis of three investment certificates featuring different characteristics and different stochastic processes used for the underlying simulation, the study demonstrates the possibility of achieving interesting results in terms of performance even for pricing these structured products ever more popular in the financial industry.

Keywords: Certificate pricing; Stochastic Differential Equation (SDE); Quasi-Monte Carlo (QMC); Low Discrepancy Sequences (LDSs); Halton sequences; Sobol sequences; Torus sequences; Black–Scholes pricing model; Local Volatility pricing model; Heston pricing model (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1142/S2424786323500214

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