Monte Carlo Theory

Building Customisable High Performance C++ Applications

Monte Carlo Theory

Postby Lapsilago » Sun Jul 15, 2007 9:21 pm

Hi everybody,

in Daniel's book it is announced that there are some pdf files for additional information. One of them comes here. It is on Theory of Monte Carlo methods. For much more details and code of course see the forthcoming book on Monte Carlo methods!

Cheers. Joerg
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Postby Cuchulainn » Sat Aug 23, 2008 12:43 pm

dS = rSdt + vol*S^b*dW == rSdt + (vol*S^b-1)SdW

r = 0.05

b = -3 (!) elasticity

vol = 0.20 * S^(1-b)

T = 0.5

K = 110

S = 100

Exact put == 9.3486

Now, using Euler with a constant mesh size for this case gives awful result, nowhere near the exact value. I have an adaptive mesh Euler method that does give good results but I need to tune the algorithm.

BTW Euler is OK up about b = -1.5.

Has anyone else experiened this behaviour?
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