Casella, Bruno and Roberts, Gareth O. (2008) Exact Monte Carlo simulation of killed diffusions. Advances in Applied Probability, Vol.40 (No.1). pp. 273-291. doi:10.1239/aap/1208358896 ISSN 0001-8678.

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Abstract

We describe and implement a novel methodology for Monte Carlo simulation of one-dimensional killed diffusions. The proposed estimators represent an unbiased and efficient alternative to current Monte Carlo estimators based on discretization methods for the cases when the finite-dimensional distributions of the process are unknown. For barrier option pricing in finance, we design a suitable Monte Carlo algorithm both for the single barrier case and the double barrier case. Results from numerical investigations are in excellent agreement with the theoretical predictions.

Item Type:	Journal Article
Subjects:	Q Science > QA Mathematics
Divisions:	Faculty of Science, Engineering and Medicine > Science > Statistics
Library of Congress Subject Headings (LCSH):	Monte Carlo method, Diffusion processes
Journal or Publication Title:	Advances in Applied Probability
Publisher:	Applied Probability Trust
ISSN:	0001-8678
Official Date:	March 2008
Dates:	Date Event March 2008 Published
Volume:	Vol.40
Number:	No.1
Number of Pages:	19
Page Range:	pp. 273-291
DOI:	10.1239/aap/1208358896
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access

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