TY - JOUR
T1 - Nearly exact option price simulation using characteristic functions
AU - Bernard, Carole
AU - Cui, Zhenyu
AU - McLeish, Don
PY - 2012/11
Y1 - 2012/11
N2 - This paper presents a new approach to perform a nearly unbiased simulation using inversion of the characteristic function. As an application we are able to give unbiased estimates of the price of forward starting options in the Heston model and of continuously monitored Parisian options in the Black-Scholes framework. This method of simulation can be applied to problems for which the characteristic functions are easily evaluated but the corresponding probability density functions are complicated.
AB - This paper presents a new approach to perform a nearly unbiased simulation using inversion of the characteristic function. As an application we are able to give unbiased estimates of the price of forward starting options in the Heston model and of continuously monitored Parisian options in the Black-Scholes framework. This method of simulation can be applied to problems for which the characteristic functions are easily evaluated but the corresponding probability density functions are complicated.
KW - Fourier inversion
KW - Heston stochastic volatility model
KW - Monte Carlo simulations
KW - Parisian option
KW - characteristic function
KW - forward-start options
KW - importance sampling
UR - http://www.scopus.com/inward/record.url?scp=84870591059&partnerID=8YFLogxK
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U2 - 10.1142/S0219024912500471
DO - 10.1142/S0219024912500471
M3 - Article
AN - SCOPUS:84870591059
SN - 0219-0249
VL - 15
JO - International Journal of Theoretical and Applied Finance
JF - International Journal of Theoretical and Applied Finance
IS - 7
M1 - 1250047
ER -