Multi-level Simulations and Importance Sampling

Przemyslaw Stan Stilger, Ser-Huang Poon

Research output: Working paper

Abstract

We present an application of importance sampling in a Monte Carlo simulation for multi-asset options and in a Multi-Level Monte Carlo simulation. We demonstrate that applying importance sampling only on the first level of the Multi-Level Monte Carlo significantly improves its effective performance. We extend the Likelihood Ratio Method Based on Characteristic Function to estimate the Greeks of multi-asset options and in a Multi-Level Monte Carlo in a computationally efficient manner. Moreover, we combine it with the importance sampling to reduce the variance of the Greeks. Finally, we study the impact of the skew on the effective performance of importance sampling.
Original languageEnglish
Number of pages26
Publication statusPublished - 2013

Publication series

NameSocial Science Research Network
No.2273215

Keywords

  • Importance sampling, Simulation, Stochastic volatility

Fingerprint

Dive into the research topics of 'Multi-level Simulations and Importance Sampling'. Together they form a unique fingerprint.

Cite this