Download this Paper Open PDF in Browser

An Improved Algorithm for Pricing Derivatives Using Sobol Quasirandom Sequences

17 Pages Posted: 21 Aug 2012  

Marcos E Silva

University of Sao Paulo (USP) - Department of Economics)

Date Written: August 21, 2012

Abstract

It is often argued that Quasi-Monte Carlo Methods (QMC ) only work for problems of low effective dimension that encompass most of financial problems. We will show here some evidence that, with the Sobol construction, they can be suited for problems with high effective dimension in the truncation sense as well as (moderately) high effective dimension in the superposition sense. We propose a methodology for obtaining the initial direction integers that are a central piece for generation of "good" Sobol sequences and show several examples both financial and nonfinancial where they can be used. Our sequences can deal with up to 35,000-dimensional problems.

Keywords: Sobol sequences, quasi-Monte Carlo methods, numerical integration, derivatives pricing

JEL Classification: G13, C63, G32

Suggested Citation

Silva, Marcos E, An Improved Algorithm for Pricing Derivatives Using Sobol Quasirandom Sequences (August 21, 2012). Available at SSRN: https://ssrn.com/abstract=2133272 or http://dx.doi.org/10.2139/ssrn.2133272

Marcos Eugenio da Silva (Contact Author)

University of Sao Paulo (USP) - Department of Economics) ( email )

Rua Luciano Gualberto, 315
São Paulo, São Paulo 14800-901
Brazil

Paper statistics

Downloads
151
Rank
163,825
Abstract Views
664