Control variates and conditional Monte Carlo for basket and Asian options

Kemal Dinçer Dingeç and Wolfgang Hörmann

Insurance: Mathematics and Economics, 2013, vol. 52, issue 3, 421-434

Abstract: A new, very efficient and fairly simple simulation method for European basket and Asian options under the geometric Brownian motion assumption is presented. It is based on a new control variate method that uses the closed form of the expected payoff conditional on the assumption that the geometric average of all prices is larger than the strike price. The combination of that new control variate with conditional Monte Carlo and quadratic control variates leads to the newly proposed algorithm. Numerical experiments show that the new algorithm is more efficient than the classical control variate method using the geometric price.

Keywords: Basket options; Asian options; Monte Carlo simulation; Control variate; Conditional Monte Carlo (search for similar items in EconPapers)
JEL-codes: C15 C63 G13 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:52:y:2013:i:3:p:421-434

DOI: 10.1016/j.insmatheco.2013.03.002

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