SSRN Author: Mohammadreza MohammadiMohammadreza Mohammadi SSRN Content
http://www.ssrn.com/author=2349340
http://www.ssrn.com/rss/en-usMon, 14 Dec 2015 02:03:09 GMTeditor@ssrn.com (Editor)Mon, 14 Dec 2015 02:03:09 GMTwebmaster@ssrn.com (WebMaster)SSRN RSS Generator 1.0REVISION: Dimension and Variance Reduction for Monte Carlo Methods for High-Dimensional Models in FinanceOne-way coupling often occurs in multi-dimensional models in finance. In this paper, we present a dimension reduction technique for Monte Carlo (MC) methods, referred to as drMC, that exploits this structure for pricing plain-vanilla European options under a N-dimensional one-way coupled model, where N is arbitrary. The dimension reduction also often produces a significant variance reduction.
The drMC method is a dimension reduction technique built upon (i) the conditional MC technique applied to one dimension and (ii) the derivation of a closed-form solution for the conditional Partial Differential Equation (PDE) that arises via Fourier transforms. In the drMC approach, the option price can be computed simply by taking the expectation of this closed-form solution. Hence, the approach results in a powerful dimension reduction from N to one, which often results in a significant variance reduction as well, since the variance associated with the other (N-1) factors in the original ...
http://www.ssrn.com/abstract=2553044
http://www.ssrn.com/1452547.htmlSun, 13 Dec 2015 06:19:14 GMTREVISION: Dimension and Variance Reduction for Monte Carlo Methods for High-Dimensional Models in FinanceOne-way coupling often occurs in multi-dimensional models in finance. In this paper, we present a dimension reduction technique for Monte Carlo (MC) methods, referred to as drMC, that exploits this structure for pricing plain-vanilla European options under a N-dimensional one-way coupled model, where N is arbitrary. The dimension reduction also often produces a significant variance reduction.
The drMC method is a dimension reduction technique built upon (i) the conditional MC technique applied to one dimension and (ii) the derivation of a closed-form solution for the conditional Partial Differential Equation (PDE) that arises via Fourier transforms. In the drMC approach, the option price can be computed simply by taking the expectation of this closed-form solution. Hence, the approach results in a powerful dimension reduction from N to one, which often results in a significant variance reduction as well, since the variance associated with the other (N-1) factors in the original ...
http://www.ssrn.com/abstract=2553044
http://www.ssrn.com/1366882.htmlWed, 21 Jan 2015 11:33:57 GMT