A fast Monte Carlo scheme for additive processes and option pricing
Computational Finance
2023-07-17 v3
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.
Keywords
Cite
@article{arxiv.2112.08291,
title = {A fast Monte Carlo scheme for additive processes and option pricing},
author = {Michele Azzone and Roberto Baviera},
journal= {arXiv preprint arXiv:2112.08291},
year = {2023}
}