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Variance reduction for simulated diffusions using control variates extracted from state space evaluations. (English) Zbl 1012.65005

Summary: We develop a method for reducing variance in Monte Carlo simulation of expected terminal payoff for diffusions. The algorithm works by extracting a control variate from the simulated path, using an approximate solution to the boundary value problem in question. The algorithm is applied successfully to an example problem.

MSC:

65C30 Numerical solutions to stochastic differential and integral equations
60H10 Stochastic ordinary differential equations (aspects of stochastic analysis)
60H35 Computational methods for stochastic equations (aspects of stochastic analysis)
60J60 Diffusion processes
65C05 Monte Carlo methods
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References:

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