On the Error in the Monte Carlo Pricing of some Familiar European Path-Dependent Options
Barclays - Barclays Capital - New York
Mathematical Finance, Vol. 15, No. 2, pp. 345-357, April 2005
This paper studies the relative error in the crude Monte Carlo pricing of some familiar European path-dependent multiasset options. For the crude Monte Carlo method it is well known that the convergence rate O(n1/2), where n is the number of simulations, is independent of the dimension of the integral. This paper also shows that for a large class of pricing problems in the multiasset Black-Scholes market the constant in O(n1/2) is independent of the dimension. To be more specific, the constant is only dependent on the highest volatility among the underlying assets, time to maturity, and degree of confidence interval.
Number of Pages in PDF File: 13Accepted Paper Series
Date posted: March 23, 2005
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