EconPapers    
Economics at your fingertips  
 

Quasi-Monte Carol Methods for the Heston Model

Jan Baldeaux and Dale Roberts
Additional contact information
Dale Roberts: Australian National University

No 307, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: In this paper, we discuss the application of quasi-Monte Carlo methods to the Heston model. We base our algorithms on the Broadie-Kaya algorithm, an exact simulation scheme for the Heston model. As the joint transition densities are not available in closed-form, the Linear Transformation method due to Imai and Tan, a popular and widely applicable method to improve the effectiveness of quasi-Monte Carlo methods, cannot be employed in the context of path-dependent options when the underlying price process follows the Heston model. Consequently, we tailor quasi-Monte Carlo methods directly to the Heston model. The contributions of the paper are threefold: We firstly show how to apply quasi-Monte Carlo methods in the context of the Heston model and the SVJ model, secondly that quasi-Monte Carlo methods improve on Monte Carlo methods, and thirdly how to improve the effectiveness of quasi-Monte Carlo methods by using bridge constructions tailored to the Heston and SVJ models. Finally, we provide some extensions for computing greeks, barrier options, multidimensional and multi-asset pricing, and the 3=2 model.

Keywords: quasi-Monte Carlo methods; computational finance; stochastic volatility; path-dependent derivatives; bridge sampling; exact simulation (search for similar items in EconPapers)
Pages: 21 pages
Date: 2012-06-01
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)

Downloads: (external link)
https://www.uts.edu.au/sites/default/files/qfr-archive-03/QFR-rp307.pdf (application/pdf)

Related works:
Working Paper: Quasi-Monte Carlo methods for the Heston model (2012) Downloads
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:uts:rpaper:307

Access Statistics for this paper

More papers in Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney PO Box 123, Broadway, NSW 2007, Australia. Contact information at EDIRC.
Bibliographic data for series maintained by Duncan Ford ().

 
Page updated 2024-07-22
Handle: RePEc:uts:rpaper:307