zero bond option monte carlo
Posted: November 3rd, 2008, 5:48 pm
I was trying to reproduce the analytic price for zero bond call/put option using Vasicek model. I simulated a pair of guassian random numbers: short rates at time t and accumulated short rates(discount factors). I did a couple 10000-scenario simulations. None of them gave me good results. In fact, all the simulated prices are at least 20%-30% higher than analytic solutions. But the simulated bond prices are very close of the analytic bond prices from Vasicek model. Could anyone give me some suggestions on how to bring the simulated value close to analytic prices?Helps are appreciated!