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Antonio
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Approximation of a multivariate gaussian probability

August 9th, 2004, 3:55 pm

In order to estimate the convergence of Monte Caro methods on the pricing of rainbow options, I have to calculate the theorical valeu of the option. I already have the close formula of the option, but I need to calculate the two-dimension gaussian probability. As there doesn't exist any close formula, I'm looking for any approximation methods for it.Could anyone help me ?Thanks in advance
 
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Gmike2000
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Joined: September 25th, 2003, 9:49 pm

Approximation of a multivariate gaussian probability

August 10th, 2004, 6:30 pm

dont know of any closed form approximation, but it is really easy to do this in matlab (use trapezoidal rule over a fine mesh).
 
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daveangel
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Approximation of a multivariate gaussian probability

August 10th, 2004, 7:14 pm

Do you mean you want to compute M(a,b,r) where M() is the bivariate cumulative density function ?
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Antonio
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Approximation of a multivariate gaussian probability

August 11th, 2004, 9:22 am

Yes. That's what I wanted to do. But I found an approximation method in Hull's bookThanks
 
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prospero
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Approximation of a multivariate gaussian probability

August 11th, 2004, 11:28 am

there's an excellent article in the Summer '03 Journal of Computational Finance comparing different approximations of bivariate Normals. The one given in Hull's book didn't fare well, ended up as of the least accurate and slowest.
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