Efficient basket Monte Carlo option pricing via a simple analytical approximation

Date

2013-05-01

Author

Korn, Ralf
Zeytun, Serkan

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This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

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We present a new valuation method for basket options that is based on a limiting approximation of the arithmetic mean by the geometric mean. Using this approximation combined with a new analytical pricing formula for an approximating geometric mean-based option as a control variate, excellent performance for Monte Carlo pricing in a control variate setting is obtained.

Subject Keywords

Options based on arithmetic averages, Sum of log-normal distributions, Monte Carlo method, Black-Scholes model, Variance reduction methods

URI

https://hdl.handle.net/11511/64531

Journal

JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS

DOI

https://doi.org/10.1016/j.cam.2012.10.035

Collections

Graduate School of Applied Mathematics, Article

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Citation Formats

R. Korn and S. Zeytun, “Efficient basket Monte Carlo option pricing via a simple analytical approximation,” JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS, pp. 48–59, 2013, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/64531.