NEARLY EXACT OPTION PRICE SIMULATION USING CHARACTERISTIC FUNCTIONS
Authors:
- 1 November 2012
- journal article
- research article
- Published by World Scientific Pub Co Pte Ltd in International Journal of Theoretical and Applied Finance
- Vol. 15 (07)
Abstract
This paper presents a new approach to perform a nearly unbiased simulation using inversion of the characteristic function. As an application we are able to give unbiased estimates of the price of forward starting options in the Heston model and of continuously monitored Parisian options in the Black-Scholes framework. This method of simulation can be applied to problems for which the characteristic functions are easily evaluated but the corresponding probability density functions are complicated.Keywords
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