Calculation aspects of the European rebalanced basket option using Monte Carlo methods : valuation
Date
2012
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Operations Research Society of South Africa
Abstract
Extra premiums can be charged to a client to guarantee a minimum payout of a contract on a portfolio that gets rebalanced on a regular basis back to fixed proportions. The valuation of this premium can be changed to that of the pricing of a European put option with underlying rebalanced portfolio. This article finds the most efficient estimators for the value of this path-dependant multi-asset put option using different Monte Carlo methods. With the help of a refined method, computing time of the value decreased significantly. Furthermore, Variance Reduction Techniques and Quasi-Monte Carlo methods delivered more accurate and faster converging estimates as well.
Description
CITATION: Van der Merwe, C. J. & Conradie, W. J. 2012. Calculation aspects of the European rebalanced basket option using Monte Carlo methods : valuation. Orion, 28(1):1-18, doi:10.5784/28-1-104.
The original publication is available at http://orion.journals.ac.za
The original publication is available at http://orion.journals.ac.za
Keywords
Monte Carlo method, Stochastic processes
Citation
Van der Merwe, C. J. & Conradie, W. J. 2012. Calculation aspects of the European rebalanced basket option using Monte Carlo methods : valuation. Orion, 28(1):1-18, doi:10.5784/28-1-104.