The correlation is a big modelling problem, "One of the most interesting in the Equity World". In the last decade, correlation products became very popular and attractive. The demand for a number of exotic products like dispersion trades, worst of, rainbows, correlation swaps, corridor option on...

Recently, simulation methods combined with regression techniques have gained importance when it comes to American option pricing. In this paper we consider such methods and we examine numerically their convergence properties. We first consider the Least Squares Monte-Carlo (LSM) method of...

The least squares Monte Carlo method of Longstaff and Schwartz (2001) has become a standard numerical method for option pricing with many potential risk factors. An important choice in the method is the number of regressors to use and using too few or too many regressors leads to biased results....

Credit value adjustment (CVA) and related charges have emerged as important risk factors following the Global Financial Crisis. These charges depend on uncertain future values of underlying products, and are usually computed by Monte Carlo simulation. For products that cannot be valued...

In this paper, we develop a new nonparametric approach for estimating the risk-neutral density of asset price and reformulate its estimation into a double-constrained optimization problem. We implement our approach in R and evaluate it using the S&P 500 market option prices from 1996 to 2015. A...

We propose a novel Monte Carlo simulation method for two-dimensional stochastic differential equation (SDE) systems based on approximation through continuous-time Markov chains (CTMCs). Specifically, we propose an efficient simulation framework for asset prices under general stochastic local...

We theoretically compare variances between the Infinitesimal Perturbation Analysis (IPA) estimator and the Likelihood Ratio (LR) estimator to Monte Carlo gradient for stochastic systems. The conditions proposed in [Cui et al., 2020] when the IPA estimator has a smaller variance can yield sharper...

We explore simple finite sample adjustments to simulated spot FX rates, zero bonds, forward IBORs and the numeraire to ensure the martingale asset pricing property of linear IR and FX products holds exactly with a finite number of Monte Carlo simulations. The impact on CVA, DVA, and CVA-DVA...

This paper demonstrates that it is possible to improve significantly on the estimated call prices obtained with the regression and simulation-based least-squares Monte Carlo method by using put-call symmetry. The results show that, for a large sample of options with characteristics of relevance...

Contemporary actuarial and accounting practices (APN 110 in the South African context) require the use of market-consistent models for the valuation of embedded investment derivatives. These models have to be calibrated with accurate and up-to-date market data. Arguably, the most important...