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Pricing and hedging American options by Monte Carlo methods using a Malliavin calculus approach

Vlad Bally 1 Lucia Caramellino 1 Antonino Zanette 1
1 MATHFI - Financial mathematics
Inria Paris-Rocquencourt, ENPC - École des Ponts ParisTech, UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12
Abstract : Following the pioneering papers of Fournié, Lasry, Lebouchoux, Lions and Touzi, an important work concerning the applications of the Malliavin calculus in numerical methods for mathematical finance has come after. One is concerned with two problems: computation of a large number of conditional expectations on one hand and computation of Greeks (sensitivities) on the other hand. A significant test of the power of this approach is given by its application to pricing and hedging American options. Our paper gives a global and simplified presentation of this topic including the reduction of variance techniques based on localization and control variables. A special interest is given to practical implementation, number of numerical tests are presented and their performances are carefully discussed.
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Submitted on : Tuesday, May 23, 2006 - 6:46:18 PM
Last modification on : Wednesday, September 4, 2019 - 1:52:07 PM
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Vlad Bally, Lucia Caramellino, Antonino Zanette. Pricing and hedging American options by Monte Carlo methods using a Malliavin calculus approach. [Research Report] RR-4804, INRIA. 2003. ⟨inria-00071782⟩

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