Multi-Level Monte Carlo Simulations with Importance Sampling
30 Pages Posted: 3 Jun 2013 Last revised: 21 Mar 2014
Date Written: March 21, 2014
Abstract We present an application of importance sampling to multi-asset options under the Heston and the Bates models as well as to the Heston-Hull-White and the Heston-Cox-Ingersoll-Ross models. Moreover, we provide an efficient importance sampling scheme in a Multi-Level Monte Carlo simulation. In all cases, we explain how the Greeks can be computed in the different simulation schemes using the Likelihood Ratio Method, and how combining it with importance sampling leads to a significant variance reduction for the Greeks.
Keywords: Importance sampling, Simulation, Stochastic volatility
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