Using Monte Carlo Simulation and Importance Sampling to Rapidly Obtain Jump-Diffusion Prices of Continuous Barrier Options
15 Pages Posted: 12 Jun 2006
Date Written: October 1, 2005
The problem of pricing a continuous barrier option in a jump-diffusion model is studied. It is shown that via an effective combination of importance sampling and analytic formulas thatsubstantial speed ups can be achieved. These techniques are shown to be particularly effective for computing deltas.
Keywords: jump-diffusion, barrier option, Monte Carlo, importance sampling
JEL Classification: C19
Suggested Citation: Suggested Citation