<t>Forget Euler. Try perfect simulation for this problem - a new simulation technique for diffusions which does not rely on time stepping, is unbiased and allows for easy calulation of functionals such as hitting times. DiCesare and McLeish (Insurance: Mathematics and Economics, 2008) discuss this i...

He should be using implied if available. In doing so he is consistent with market prices. If the correlation parameter is uncertain and cannot be implied from market, then at least you can derive a range of plausible prices consistent with the market. I think your client is wrong.

<t>Reading the abstract tells me that these authors wish the formula was named after them! The abstract almost suggests that BSM contributed nothing or very little to helping solve the option pricing problem. Bullocks. Yes, others did some great work before BSM....but, BSM put everything together in...

<t>Collector, people do those things to get un-stressed... Maybe we need to properly define what stress is to answer this question. Activities llike body building, etc. release endorphins which in turn increase our sense of well being. I don't think stress (as it is traditionally thought of) increas...

<r>When you use a low discrepancy sequence (ex. Sobol) you are in the relm of Quasi Monte Carlo (QMC) integration. The standard error estimates used in Monte Carlo simualtion are based on random observations, which you do not have in the QMC framework. The standard error estimate has no meaning in Q...

Using your tree, plot the price of an American call with discrete dividends as a function of the maturity date. What happens to the call price as its maturity passes over a dividend date?

This ype of product is typically written on a basket of equities making the PDE method inefficient compared to MC. Use a local vol specification for each underlying, estimate correlations using your favourite method. Simulate and conquer.....

Hi all,Does anyone know of any books/articles that describe the pricing of multi asset equity derivatives using copula functions as a means of corrleation (rather than correlating the assets instantaneously through Brownain Motions) ??

Use Monte Carlo simulation.

<t>I have fitted Gatheral's SVI parameterization to SPX options. It fits every time slice very well, especially when using a vega weighed least squares objective function for your calibration. You need to be careful about parameter restrictions though - it is not guarenteed to be arbitrage free (in ...

when the dividends are not stochastic

The forward would be: (S-PV)*exp(r*T), where PV = present value of dividends occuring between time 0 and T.