Title: New simulation methodology for finance: efficient simulation of gamma and variance-gamma processes
Abstract:We study algorithms for sampling discrete-time paths of a gamma process and a variance gamma process, defined as a Brownian process with random time change obeying a gamma process. The attractive feat...We study algorithms for sampling discrete-time paths of a gamma process and a variance gamma process, defined as a Brownian process with random time change obeying a gamma process. The attractive feature of the algorithms is that increments of the processes over longer time scales are assigned to the first sampling coordinates. The algorithms are based on having in explicit form the process' conditional distributions, are similar in spirit to the Brownian bridge sampling algorithms proposed for financial Monte Carlo, and synergize with quasi-Monte Carlo techniques for efficiency improvement. We compare the variance and efficiency of ordinary Monte Carlo and quasi-Monte Carlo for an example of financial option pricing with the variance-gamma model, taken from Madan, Carr, and Chang (1998).Read More
Publication Year: 2003
Publication Date: 2003-12-07
Language: en
Type: article
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Cited By Count: 7
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