Abstract

In this article we consider the problem of pricing and hedging high-dimensional Asian basket options by Quasi-Monte Carlo simulations. We assume a Black-Scholes market with time-dependent volatilities, and we compute the deltas by means of the Malliavin Calculus as an extension of the procedures employed by Kohatsu-Higa and Montero (Physica A 320:548-570, 2003). Efficient path-generation algorithms, such as Linear Transformation and Principal Component Analysis, exhibit a high computational cost in a market with time-dependent volatilities. To face this challenge we then introduce a new and faster Cholesky algorithm for block matrices that makes the Linear Transformation more convenient. We also propose a new-path generation technique based on a Kronecker Product Approximation. Our procedure shows the same accuracy as the Linear Transformation used for the computation of deltas and prices in the case of correlated asset returns, while requiring a shorter computational time. All these techniques can be easily employed for stochastic volatility models based on the mixture of multi-dimensional dynamics introduced by Brigo et al. (2004a, Risk 17(5):97-101, b). © 2011 Springer Science+Business Media, LLC.

Autore Pugliese

• Cufaro Petroni Nicola

Tutti gli autori

• CUFARO PETRONI N.

Titolo volume/Rivista

Non Disponibile

Anno di pubblicazione

2013

ISSN

1387-5841

ISBN

Non Disponibile

Numero di citazioni Wos

Nessuna citazione

Ultimo Aggiornamento Citazioni

Non Disponibile

Numero di citazioni Scopus

2

Ultimo Aggiornamento Citazioni

Non Disponibile

Settori ERC

Non Disponibile

Codici ASJC

Non Disponibile