Finite Element Based Monte Carlo Simulation of Option Prices on Lévy Driven Assets
21 Pages Posted: 24 Jan 2016
Date Written: December 14, 2015
Abstract
This paper extends the simulation algorithm by Andreasen & Huge (2011) to the simulation of option prices and deltas on Lévy driven assets. The simulation is performed relying on the inverse transition matrix of the discretized PDE. Each row describes the evolution of option prices and can thus be seen as the underlying’s transition probability distribution. We demonstrate how one can get accurate prices and deltas of European options on VG and CGMY via Monte Carlo simulations.
Keywords: Computational Finance; Derivative Pricing; Finite Element Method; Monte Carlo Simulation, Lévy Processes
Suggested Citation: Suggested Citation
Karlsson, Patrik, Finite Element Based Monte Carlo Simulation of Option Prices on Lévy Driven Assets (December 14, 2015). Available at SSRN: https://ssrn.com/abstract=2721095 or http://dx.doi.org/10.2139/ssrn.2721095
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