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Exact Simulation of the 3/2 Model

Jan Baldeaux

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Abstract: This paper discusses the exact simulation of the stock price process underlying the 3/2 model. Using a result derived by Craddock and Lennox using Lie Symmetry Analysis, we adapt the Broadie-Kaya algorithm for the simulation of affine processes to the 3/2 model. We also discuss variance reduction techniques and find that conditional Monte Carlo techniques combined with quasi-Monte Carlo point sets result in significant variance reductions.

Date: 2011-05, Revised 2011-05
New Economics Papers: this item is included in nep-cmp
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