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Efficient basket Monte Carlo option pricing via a simple analytical approximation
Date
2013-05-01
Author
Korn, Ralf
Zeytun, Serkan
Metadata
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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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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.