Monte Carlo pathwise sensitivities for barrier options

Thomas Gerstner, Bastian Harrach and Daniel Roth

Papers from arXiv.org

Abstract: The Monte Carlo pathwise sensitivities approach is well established for smooth payoff functions. In this work, we present a new Monte Carlo algorithm that is able to calculate the pathwise sensitivities for discontinuous payoff functions. Our main tool is to combine the one-step survival idea of Glasserman and Staum with the stable differentiation approach of Alm, Harrach, Harrach and Keller. As an application we use the derived results for a two-dimensional calibration of a CoCo-Bond, which we model with different types of discretely monitored barrier options.

Date: 2018-04, Revised 2019-04
New Economics Papers: this item is included in nep-cmp
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Published in J. Comput. Finance 23 (5), 75-99, 2020

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1804.03975

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