DEL MORAL, Pierre; JASRA, Ajay

doi:10.1080/07362994.2011.548993

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DEL MORAL, Pierre
Advanced Learning Evolutionary Algorithms [ALEA]

JASRA, Ajay
Department of Mathematics [Imperial College London]

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Stochastic Analysis and Applications. 2011, vol. 29, n° 2, p. 292-316

Taylor & Francis: STM, Behavioural Science and Public Health Titles

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In the following paper we provide a review and development of sequential Monte Carlo (SMC) methods for option pricing. SMC are a class of Monte Carlo-based algorithms, that are designed to approximate expectations w.r.t a sequence of related probability measures. These approaches have been used, successfully, for a wide class of applications in engineering, statistics, physics and operations research. SMC methods are highly suited to many option pricing problems and sensitivity/Greek calculations due to the nature of the sequential simulation. However, it is seldom the case that such ideas are explicitly used in the option pricing literature. This article provides an up-to date review of SMC methods, which are appropriate for option pricing. In addition, it is illustrated how a number of existing approaches for option pricing can be enhanced via SMC. Specifically, when pricing the arithmetic Asian option w.r.t a complex stochastic volatility model, it is shown that SMC methods provide additional strategies to improve estimation.< Réduire

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Sequential Monte Carlo Methods for Option Pricing

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