Note on simulation pricing of $\pi$-options
Computational Finance
2020-08-26 v2
Abstract
In this work, we adapt a Monte Carlo algorithm introduced by Broadie and Glasserman (1997) to price a -option. This method is based on the simulated price tree that comes from discretization and replication of possible trajectories of the underlying asset's price. As a result this algorithm produces the lower and the upper bounds that converge to the true price with the increasing depth of the tree. Under specific parametrization, this -option is related to relative maximum drawdown and can be used in the real-market environment to protect a portfolio against volatile and unexpected price drops. We also provide some numerical analysis.
Cite
@article{arxiv.2007.02076,
title = {Note on simulation pricing of $\pi$-options},
author = {Zbigniew Palmowski and Tomasz Serafin},
journal= {arXiv preprint arXiv:2007.02076},
year = {2020}
}