Using Monte Carlo Simulation and Importance Sampling to Rapidly Obtain Jump-Diffusion Prices of Continuous Barrier Options

15 Pages Posted: 12 Jun 2006

See all articles by Mark S. Joshi

Mark S. Joshi

University of Melbourne - Centre for Actuarial Studies (deceased)

Terence Leung

University College London

Date Written: October 1, 2005

Abstract

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

Joshi, Mark and Leung, Terence, Using Monte Carlo Simulation and Importance Sampling to Rapidly Obtain Jump-Diffusion Prices of Continuous Barrier Options (October 1, 2005). Available at SSRN: https://ssrn.com/abstract=907386 or http://dx.doi.org/10.2139/ssrn.907386

Mark Joshi (Contact Author)

University of Melbourne - Centre for Actuarial Studies (deceased) ( email )

Melbourne, 3010
Australia

Terence Leung

University College London ( email )

Gower Street
London, WC1E 6BT
Great Britain

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