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2008•Communications of the Korean Mathematical SocietyRequires access

EFFICIENT MONTE CARLO ALGORITHM FOR PRICING BARRIER OPTIONS

Kyoung-Sook Moon

Open publisher page 21 citations

Abstract

A new Monte Carlo method is presented to compute the prices of barrier options on stocks. The key idea of the new method is to use an exit probability and uniformly distributed random numbers in order to efficiently estimate the first hitting time of barriers. It is numerically shown that the first hitting time error of the new Monte Carlo method decreases much faster than that of standard Monte Carlo methods.

About this research paper

What this paper is about

A new Monte Carlo method is presented to compute the prices of barrier options on stocks. The key idea of the new method is to use an exit probability and uniformly distributed random numbers in order to efficiently estimate the first hitting time of barriers. It is numerically shown that the first hitting time error of the new Monte Carlo method decreases much faster than that of standard Monte Carlo methods.

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OpenAlex reports 21 citations for this work. Citation counts describe recorded attention and do not establish research quality.

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Available abstract

A new Monte Carlo method is presented to compute the prices of barrier options on stocks. The key idea of the new method is to use an exit probability and uniformly distributed random numbers in order to efficiently estimate the first hitting time of barriers. It is numerically shown that the first hitting time error of the new Monte Carlo method decreases much faster than that of standard Monte Carlo methods.

Key concepts: Monte Carlo method, Quasi-Monte Carlo method, Hybrid Monte Carlo, Monte Carlo integration, Dynamic Monte Carlo method, Monte Carlo molecular modeling, Monte Carlo algorithm, Mathematics

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