Optimal search for parameters in Monte Carlo simulation for derivative pricing

Chuan-Ju Wang and Ming-Yang Kao

European Journal of Operational Research, 2016, vol. 249, issue 2, 683-690

Abstract: This paper provides a novel and general framework for the problem of searching parameter space in Monte Carlo simulations. We propose a deterministic online algorithm and a randomized online algorithm to search for suitable parameter values for derivative pricing which are needed to achieve desired precisions. We also give the competitive ratios of the two algorithms and prove the optimality of the algorithms. Experimental results on the performance of the algorithms are presented and analyzed as well.

Keywords: Finance; Monte Carlo simulation; Deterministic online algorithm; Randomized online algorithm; Competitive ratio (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:249:y:2016:i:2:p:683-690

DOI: 10.1016/j.ejor.2015.08.060

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