Title :
Variance Reduction Techniques for Basket Option
Author :
Yang, Haijun ; An, Sa
Author_Institution :
Econ. & Manage. Sch., Beihang Univ., Beijing, China
Abstract :
This paper prices the basket option by Monte Carlo simulation. With the comparison of the methods used as variance reduction techniques, to find the optimal way for reducing variance for basket option.The methods include antithetic variates, control variates,importance sampling,stratified sampling,moment matching, Latin hypercube sampling and combined methods. Numerical results indicate that an appropriate combination of importance sampling and stratified sampling can obtain the largest variance reductions when estimating the basket option.
Keywords :
finance; importance sampling; Latin hypercube sampling; Monte Carlo simulation; antithetic variates; basket option; importance sampling; moment matching; stratified sampling; variance reduction techniques; Biological system modeling; Computational modeling; Economics; Hypercubes; Mathematical model; Monte Carlo methods; Pricing;
Conference_Titel :
Management and Service Science (MASS), 2010 International Conference on
Conference_Location :
Wuhan
Print_ISBN :
978-1-4244-5325-2
Electronic_ISBN :
978-1-4244-5326-9
DOI :
10.1109/ICMSS.2010.5578221