Monte Carlo methods for security pricing. (English) Zbl 0901.90007

Boyle, Phelim; Broadie, Mark; Glasserman, Paul

J. Econ. Dyn. Control 21, No. 8-9, 1267-1321 (1997).

Summary: The Monte Carlo approach has proved to be a valuable and flexible computational tool in modern finance. This paper discusses some of the recent applications of the Monte Carlo method to security pricing problems, with emphasis on improvements in efficiency. We first review some variance reduction methods that have proved useful in finance. Then we describe the use of deterministic low-discrepancy sequences, also known as quasi-Monte Carlo methods, for the valuation of complex derivative securities. We summarize some recent applications of the Monte Carlo method to the estimation of partial derivatives or risk sensitivities and to the valuation of American options. We conclude by mentioning other applications.

MSC:

91G60	Numerical methods (including Monte Carlo methods)
65C05	Monte Carlo methods
91G20	Derivative securities (option pricing, hedging, etc.)

Keywords:

Monte Carlo simulation; quasi-Monte Carlo; option pricing; variance reduction; derivative estimation

Software:

TOMS659

References:

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