Functional Quantization Based Stratified Sampling Methods
Université Paris VI
Université Paris VI Pierre et Marie Curie
August 25, 2010
In this article, we propose several quantization based stratified sampling methods to reduce the variance of a Monte-Carlo simulation.
Theoretical aspects of stratification lead to a strong link between the problem of optimal L^2-quantization of a random variable and the variance reduction that can be achieved. We first emphasize on the consistency of quantization for designing strata in stratified sampling methods in both finite dimensional and infinite dimensional frameworks. We show that this strata design has a uniform efficiency among the class of Lipschitz continuous functionals.
Then a stratified sampling algorithm based on product functional quantization is proposed for path-dependent functionals of multi-factor diffusions. The method is also available for other Gaussian processes as the Brownian bridge or an Ornstein-Uhlenbeck process. We derive in detail the quantization of the
The balance between the algorithmic complexity of the simulation and the variance reduction factor has also been studied.
Number of Pages in PDF File: 30
Keywords: Functional Quantization, Vector Quantization, Stratification, Variance Reduction, Monte-Carlo Simulation, Karhunen-Loève Basis, Gaussian Process, Brownian Motion, Brownian Bridge, Ornstein-Uhlenbeck Process, Fractional Brownian Motion, Principal Component Analysis, Option Pricing
JEL Classification: C15working papers series
Date posted: March 31, 2010 ; Last revised: August 28, 2010
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