The Mathematical Institute, University of Oxford, Eprints Archive

A Mixed PDE/Monte Carlo approach as an efficient way to price under high-dimensional systems

Ang, Xing Xian (2013) A Mixed PDE/Monte Carlo approach as an efficient way to price under high-dimensional systems. Masters thesis, Oxford University.

[img]
Preview
PDF (Xing Ang Dissertation) - Submitted Version
380kB

Abstract

We propose to price derivatives modelled by multi-dimensional systems of stochastic di�fferential
equations using a mixed PDE/Monte Carlo approach. We derive a stochastic PDE where some of the coeffi�cients are conditional on stochastic ancillary factors. The stochastic
PDE is solved with either analytical or �finite diff�erence methods, where we simulate all the ancillary processes using Monte Carlo. The multilevel technique has also been introduced to further reduce the variance. The combined method showed over 80% cost reduction for the same accuracy, in pricing a barrier option in an FX market with stochastic interest rate and volatility (which is usually expensive to work with) , when compared to the pure Monte
Carlo simulation.

Item Type:Thesis (Masters)
Subjects:H - N > Mathematics education
Research Groups:Mathematical and Computational Finance Group
ID Code:1736
Deposited By: Laura Auger
Deposited On:13 Aug 2013 19:09
Last Modified:29 May 2015 19:25

Repository Staff Only: item control page