EXACT SIMULATION OF THE 3/2 MODEL

This paper discusses the exact simulation of the stock price process underlying the 3/2 model. Using a result derived by Craddock and Lennox using Lie Symmetry Analysis, we adapt the Broadie-Kaya algorithm for the simulation of affine processes to the 3/2 model. We also discuss variance reduction techniques and find that conditional Monte Carlo techniques combined with quasi-Monte Carlo point sets result in significant variance reductions.

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Year of publication:	2012
Authors:	BALDEAUX, JAN
Published in:	International Journal of Theoretical and Applied Finance (IJTAF). - World Scientific Publishing Co. Pte. Ltd., ISSN 1793-6322. - Vol. 15.2012, 05, p. 1250032-1
Publisher:	World Scientific Publishing Co. Pte. Ltd.
Subject:	Stochastic volatility model \| 3/2 model \| exact simulation \| variance reduction techniques

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Extent:	application/pdf text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

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