MC/QMC Methods for Option Pricing under Stochastic Volatility Models
نویسندگان
چکیده
In the context of multi-factor stochastic volatility models, which contain the widely used Heston model, we present variance reduction techniques to price European options by Monte Carlo (MC) and QuasiMonte Carlo (QMC) methods. We formulate a stochastic integral as a martingale control for the payoffs to be evaluated. That control corresponds to the cost of an approximate delta hedging strategy. Putting together this control variate method and randomized quasi-Monte Carlo methods, including the Sobol’ sequence and L’Ecuyer type good lattice points, we find that the variance reduction ratios can reach up to 300 times for European options under multi-factor stochastic volatility models.
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