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Monte carlo for basket
hiI want to price some basket options with MC simulations and which MC method are best for simulation of n-variate assets with given linear correlation matrix?thanks
Monte carlo for basket
QuoteOriginally posted by: zetterhiI want to price some basket options with MC simulations and which MC method are best for simulation of n-variate assets with given linear correlation matrix?thanksDo you mean by "best method" which variance reduction technique gives the most bang ?
Last edited by quantie on May 12th, 2005, 10:00 pm, edited 1 time in total.
Monte carlo for basket
I would be interesting to know both which method that have the best variance reduction and also which method "most people" use to do a basket option pricing?
Last edited by zetter on May 12th, 2005, 10:00 pm, edited 1 time in total.
Monte carlo for basket
QuoteOriginally posted by: zetterI would be interesting to know both which method that have the best variance reduction and also which method "most people" use to do a basket option pricing?Okay you have to define what are the methods that you have considered? And How much cpu cycles and time you got?As I know maybe 2 people's prefered method for pricing you aren't going to get a good answer for "most people".Also see this
Monte carlo for basket
Ok, ill try again.I just started with this and wanted a hint in the right direction. I tried to use the simplest possible approach i knowed and generated a vector (Z_1,...,Z_n) and then used cholesky and created a path with (X_1,...,X_n) with the correlation I wanted.So I just wanted to know some other methods for doing this better. Maybe "best" was a bad choice of word. Instead I just wanted to know more methods for achieving this.
Monte carlo for basket
Firstly, if you are considering a European option don't create the whole path. Just generate a sample from the terminal distribution.From there it is easy to add in various standard variance reduction techniques.
Monte carlo for basket
ThanksBut I will probably need to evaluate asian basket options also.
Monte carlo for basket
QuoteOriginally posted by: zetterThanksBut I will probably need to evaluate asian basket options also.Okay it is trivial to add antithetic paths and you may have tried that...Next depending on where you'd like to start:Control Variates - for baskets you can think of some natural conditional and unconditional controls..Quasi MC - using Sobol/Halton/Faure with/without brownian bridging.Importance sampling.Stratified sampling- Latin Hypercube/improved hypercube sampling.
Last edited by quantie on May 16th, 2005, 10:00 pm, edited 1 time in total.
Monte carlo for basket
hi i'am also trying to price a basket optioni see that antonio has sent the VBA Code for Cholesky Decompositioni took it but unfortunatelly,i don't know how to use it in Excel,i mean how do i enter my matrix A on Excel and how to obtain the L matrix wich is the cholesky decomposition of A.Can you please send me the excel File where i can find the pricing of the basket option if you have already done itthank you very much for your helpyou can send me the files at the following address : mohamed.rhrmaritlemcani@epfl.ch