A generalized antithetic variates Monte-Carlo simulation method for pricing of Asian option in a Markov regime-switching model

Idin Noorani, Farshid Mehrdoust and Abdelaziz Nasroallah

Mathematics and Computers in Simulation (MATCOM), 2021, vol. 181, issue C, 1-15

Abstract: In this paper, we introduce a regime-switching model, such that the volatility of the model depends on the asset price. In this model, the interest rate and the volatility are associated with regime changes. Since the market model has the arbitrage opportunity, we derive an equivalent martingale measure for pricing an arithmetic Asian option. To evaluate the price of an arithmetic Asian option, we propose an efficient variance reduction Monte-Carlo simulation method based on the generation of K-correlated standard normal random vectors. Numerical experiments confirm the success of this method.

Keywords: Regime switching models; Asian option pricing; Monte-Carlo simulation; Variance reduction methods (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:181:y:2021:i:c:p:1-15

DOI: 10.1016/j.matcom.2020.09.011

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