Adaptive numerical integration and control variates for pricing Basket Options
Probability
2012-10-30 v1 Numerical Analysis
Abstract
We develop a numerical method for pricing multidimensional vanilla options in the Black-Scholes framework. In low dimensions, we improve an adaptive integration algorithm proposed by two of the authors by introducing a new splitting strategy based on a geometrical criterion. In higher dimensions, this new algorithm is used as a control variate after a dimension reduction based on principal component analysis. Numerical tests are performed on the pricing of basket, put on minimum and digital options in dimensions up to ten.
Keywords
Cite
@article{arxiv.1210.7783,
title = {Adaptive numerical integration and control variates for pricing Basket Options},
author = {Christophe De Luigi and Jérôme Lelong and Sylvain Maire},
journal= {arXiv preprint arXiv:1210.7783},
year = {2012}
}