A fast Monte Carlo scheme for additive processes and option pricing

Michele Azzone and Roberto Baviera

Papers from arXiv.org

Abstract: In this paper, we present a very fast Monte Carlo scheme for additive processes: the computational time is of the same order of magnitude of standard algorithms for Brownian motions. We analyze in detail numerical error sources and propose a technique that reduces the two major sources of error. We also compare our results with a benchmark method: the jump simulation with Gaussian approximation. We show an application to additive normal tempered stable processes, a class of additive processes that calibrates ``exactly" the implied volatility surface.Numerical results are relevant. This fast algorithm is also an accurate tool for pricing path-dependent discretely-monitoring options with errors of one bp or below.

Date: 2021-12, Revised 2023-07
New Economics Papers: this item is included in nep-cmp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in A fast Monte Carlo scheme for additive processes and option pricing, 20, 31 (2023)

Downloads: (external link)
http://arxiv.org/pdf/2112.08291 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2112.08291

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().