Numerical Methods for the Valuation of Accumulators under Local Volatility
19 Pages Posted: 15 Nov 2012 Last revised: 28 Jan 2013
Date Written: November 13, 2012
Under the local volatility model, the convergence of Monte-Carlo with Milstein discretization and Euler discretization are compared for the pricing of Vanilla, Digital, discrete Barrier options as well as a more exotic variety of option, the Accumulator. A finite difference approach is also studied. Parametric and Non-Parametric local volatility models are examined.
Keywords: Option, Finance, Local Volatility, Monte-Carlo, Milstein, Euler, Accumulator, Displaced Diffusion
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