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Some Control Variates for exotic options

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  • JC Ndogmo

Abstract

There are no known exact formulas for the valuation of a number of exotic options, and this is particularly true for options under discrete monitoring and for American style options. Therefore, one usually recourses to a Monte Carlo Simulation approach, amongst other numerical methods, to estimate the value of these options. The problem which then arises with this method is one of variance reduction. Control variates are often used, and we present some results concerning these control variables, for the valuation of Asian and lookback options. An inequality on functions of correlations useful for comparing estimators in variance reduction procedures is also provided.

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  • JC Ndogmo, 2008. "Some Control Variates for exotic options," Papers 0806.4675, arXiv.org.
    • Handle: RePEc:arx:papers:0806.4675
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    References listed on IDEAS

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    1. A. Mayo, 2004. "High-order accurate implicit finite difference method for evaluating American options," The European Journal of Finance, Taylor & Francis Journals, vol. 10(3), pages 212-237.
    2. Barraquand, Jérôme & Martineau, Didier, 1995. "Numerical Valuation of High Dimensional Multivariate American Securities," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(3), pages 383-405, September.
    3. Jèôme Barraquand, 1995. "Numerical Valuation of High Dimensional Multivariate European Securities," Management Science, INFORMS, vol. 41(12), pages 1882-1891, December.
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