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Finite Element Based Monte Carlo Simulation of Options on Lévy Driven Assets

Karlsson, Patrik LU (2017) In International Journal of Financial Engineering
Abstract
This paper extends the simulation algorithm by Andreasen & Huge (2011) to the simulation of option prices and deltas on Lévy driven assets. The simulation is performed relying on the inverse transition matrix of the discretized PDE. Each row describes the evolution of option prices and can thus be seen as the underlying’s transition probability distribution. We demonstrate how one can get accurate prices and deltas of European options on VG and CGMY via Monte Carlo simulations.
Please use this url to cite or link to this publication:
author
publishing date
type
Contribution to journal
publication status
in press
subject
keywords
computational finance, derivative pricing, finite element method, Monte Carlo simulation, Lévy processes
in
International Journal of Financial Engineering
DOI
10.2139/ssrn.2721095
language
English
LU publication?
no
id
da30a5f1-faa0-4f5e-acd6-dc77a20eeda0
date added to LUP
2017-02-12 12:07:31
date last changed
2017-02-13 10:38:07
@article{da30a5f1-faa0-4f5e-acd6-dc77a20eeda0,
  abstract     = {This paper extends the simulation algorithm by Andreasen & Huge (2011) to the simulation of option prices and deltas on Lévy driven assets. The simulation is performed relying on the inverse transition matrix of the discretized PDE. Each row describes the evolution of option prices and can thus be seen as the underlying’s transition probability distribution. We demonstrate how one can get accurate prices and deltas of European options on VG and CGMY via Monte Carlo simulations.},
  author       = {Karlsson, Patrik},
  keyword      = {computational finance,derivative pricing,finite element method,Monte Carlo simulation,Lévy processes},
  language     = {eng},
  month        = {02},
  series       = {International Journal of Financial Engineering},
  title        = {Finite Element Based Monte Carlo Simulation of Options on Lévy Driven Assets},
  url          = {http://dx.doi.org/10.2139/ssrn.2721095},
  year         = {2017},
}