Pricing JSE Exotic Can-Do Options: Monte Carlo Simulation

37 Pages Posted: 1 Apr 2015

See all articles by Antonie Kotze

Antonie Kotze

Financial Chaos Theory; Department of Finance and Investment Management

Rudolf Oosthuizen

JSE Securities Exchange

Date Written: March 31, 2015

Abstract

Monte Carlo simulation or probability simulation is a technique used to understand the impact of risk and uncertainty in financial and other forecasting models. It is very useful when complex financial instruments need to be priced. Exotic options are listed on the JSE on its Can-Do platform. Most listed exotic options are marked-to-model and the JSE needs accurate values at the end of every day. Monte Carlo methods in a local volatility framework are used when exotic options are priced. This paper discusses Monte Carlo (MC) simulation as implemented and used by the JSE.

Keywords: Exotic options, JSE, Can-Do Options, Implied Volatility, Local Volatility, Dupire Transforms, Gyongy Theorem, Barrier options, Monte Carlo simulation, Feynmann-Kac Theorem

JEL Classification: C15, C61, C63, G13, G17

Suggested Citation

Kotze, Antonie and Oosthuizen, Rudolf, Pricing JSE Exotic Can-Do Options: Monte Carlo Simulation (March 31, 2015). Available at SSRN: https://ssrn.com/abstract=2587391 or http://dx.doi.org/10.2139/ssrn.2587391

Antonie Kotze (Contact Author)

Financial Chaos Theory ( email )

PO Box 16185
Doornfontein, 2028
South Africa

HOME PAGE: http://www.quantonline.co.za/

Department of Finance and Investment Management ( email )

PO Box 524
Auckland Park
Johannesburg, Gauteng 2006
South Africa

HOME PAGE: http://www.uj.ac.za

Rudolf Oosthuizen

JSE Securities Exchange ( email )

United States

HOME PAGE: http://www.jse.co.za

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