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Exact simulation of the 3/2 model. (English) Zbl 1262.91114

Summary: This paper discusses the exact simulation of the stock price process underlying the 3/2 model. Using a result derived by M. Craddock and K. A. Lennox using Lie Symmetry Analysis [J. Differ. Equations 232, No. 2, 652–674 (2007; Zbl 1147.35009)], we adapt the Broadie-Kaya algorithm for the simulation of affine processes to the 3/2 model. We also discuss variance reduction techniques and find that conditional Monte Carlo techniques combined with quasi-Monte Carlo point sets result in significant variance reductions.

MSC:

91B70 Stochastic models in economics
91G60 Numerical methods (including Monte Carlo methods)

Citations:

Zbl 1147.35009
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References:

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