Large and moderate deviations for importance sampling in the Heston model
Pricing of Securities
2021-11-02 v1 Probability
Abstract
We provide a detailed importance sampling analysis for variance reduction in stochastic volatility models. The optimal change of measure is obtained using a variety of results from large and moderate deviations: small-time, large-time, small-noise. Specialising the results to the Heston model, we derive many closed-form solutions, making the whole approach easy to implement. We support our theoretical results with a detailed numerical analysis of the variance reduction gains.
Cite
@article{arxiv.2111.00348,
title = {Large and moderate deviations for importance sampling in the Heston model},
author = {Marc Geha and Antoine Jacquier and Zan Zuric},
journal= {arXiv preprint arXiv:2111.00348},
year = {2021}
}
Comments
32 pages, 12 Figures, 7 tables