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    National Tsing Hua University Institutional Repository > 科技管理學院  > 計量財務金融學系 > 期刊論文 >  A Control Variate Method to Evaluate Option Prices under Multi-Factor Stochastic Volatility Models


    Please use this identifier to cite or link to this item: http://nthur.lib.nthu.edu.tw/dspace/handle/987654321/62078


    Title: A Control Variate Method to Evaluate Option Prices under Multi-Factor Stochastic Volatility Models
    Authors: JEAN-PIERRE FOUQUE;CHUAN-HSIANG HAN
    教師: 韓傳祥
    Date: 2005
    Publisher: University of California, Santa Barbara
    Relation: University of California, Santa Barbara,2005
    Keywords: Multi-factor stochastic volatility models
    Control variates
    Importance Sampling
    Abstract: We propose a control variate method with multiple controls to effectively reduce variances of Monte Carlo simulations for pricing European options under multifactor stochastic volatility models. Based on an application of Ito’s formula, the option price is decomposed by its discounted payoff and stochastic integrals with the appearance of gradients of the unknown option price with respect to state variables (the risky asset price and driving volatility levels). Taking advantage of the closed-form option price approximations obtained by Fouque et al. (SIAM Journal on Multiscale Modeling and Simulation 2(1), 2003), we are able to build controls by substituting approximate option prices into the stochastic integrals. This setup leads to an unbiased control variate and naturally suggests estimates for control parameters. Several numerical experiments are provided to demonstrate the performance of variance reductions by this control variate method. In comparison with variance reduction ratios obtained from importance sampling, we generally find that the control variate method is numerically more stable and efficient than importance sampling for the European option pricing problems under stochastic volatility models.
    URI: http://www.pstat.ucsb.edu/faculty/fouque/PubliFM/VR_CV.ima.pdf
    http://www.ltsc.ucsb.edu/
    http://nthur.lib.nthu.edu.tw/dspace/handle/987654321/62078
    Appears in Collections:[計量財務金融學系] 期刊論文

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