Application of Importance Sampling Technique in Pricing Options

Importance sampling technique is an effective variance reduction technique in Monte Carlo simulation method for pricing options.It attempts to reduce variance by changing the probability measure from which paths are generated.This paper analyzes theoretically the application of importance sampling technique in pricing several kinds of options,and illustrates the method through examples.Meantime,it gives the algorithms which drive the Monte Carlo simulation to estimate the price of option.At last,some practical analysis is made by using importance sampling technique in Monte Carlo simulation for pricing Asian option with the help of EXCEL.