Monte Carlo pathwise sensitivities for barrier options
Computational Finance
2021-03-03 v4 Numerical Analysis
Abstract
The Monte Carlo pathwise sensitivities approach is well established for smooth payoff functions. In this work, we present a new Monte Carlo algorithm that is able to calculate the pathwise sensitivities for discontinuous payoff functions. Our main tool is to combine the one-step survival idea of Glasserman and Staum with the stable differentiation approach of Alm, Harrach, Harrach and Keller. As an application we use the derived results for a two-dimensional calibration of a CoCo-Bond, which we model with different types of discretely monitored barrier options.
Keywords
Cite
@article{arxiv.1804.03975,
title = {Monte Carlo pathwise sensitivities for barrier options},
author = {Thomas Gerstner and Bastian Harrach and Daniel Roth},
journal= {arXiv preprint arXiv:1804.03975},
year = {2021}
}