Optimal Changes of Gaussian Measures, with an Applications to Resimulation
نویسنده
چکیده
We derive optimality conditions and calculate approximate solutions to the problem of determining the optimal speed of mean reversion to be applied to a Gaussian state variable. The optimality criterion is the minimization of the variance of the Radon-Nikodym derivative of the measure ”with mean-reversion” with respect to the measure ”without mean-reversion” under constraints. We show that we can increase the speed of performing resimulation and sensitivity analysis in a Monte Carlo simulation. We apply our results to the pricing of real options and the pricing of interest-rate derivatives in the BGM/Libor model of interest rates.
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