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The valuation of exotic barrier options and American options using Monte Carlo simulation
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Chirayukool, Pokpong (2011) The valuation of exotic barrier options and American options using Monte Carlo simulation. PhD thesis, University of Warwick.
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WRAP_thesis_Chirayukool_2011.pdf - Submitted Version Download (9Mb) | Preview |
Official URL: http://webcat.warwick.ac.uk/record=b2560691~S1
Abstract
Monte Carlo simulation is a widely used numerical method for valuing financial
derivatives. It can be used to value high-dimensional options or complex
path-dependent options. Part one of the thesis is concerned with the valuation of
barrier options with complex time-varying barriers. In Part one, a novel simulation
method, the contour bridge method, is proposed to value exotic time-varying
barrier options. The new method is applied to value several exotic barrier options,
including those with quadratic and trigonometric barriers.
Part two of this thesis is concerned with the valuation of American options
using the Monte Carlo simulation method. Since the Monte Carlo simulation can
be computationally expensive, variance reduction methods must be used in order
to implement Monte Carlo simulation efficiently. Chapter 5 proposes a new control
variate method, based on the use of Bermudan put options, to value standard American
options. It is shown that this new control variate method achieves significant
gains over previous methods. Chapter 6 focuses on the extension and the generalisation
of the standard regression method for valuing American options. The proposed
method, the sequential contour Monte Carlo (SCMC) method, is based on hitting
time simulation to a fixed set of contours. The SCMC method values American put
options without bias and achieves marginal gains over the standard method. Lastly,
in Part three, the SCMC method is combined with the contour bridge method to
value American knock-in options with a linear barrier. The method can value American
barrier options very well and efficiency gains are observed.
Item Type: | Thesis (PhD) | ||||
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Subjects: | H Social Sciences > HG Finance Q Science > QA Mathematics |
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Library of Congress Subject Headings (LCSH): | Monte Carlo method, Options (Finance) -- Mathematical models, Exotic options (Finance) , Derivative securities | ||||
Official Date: | September 2011 | ||||
Dates: |
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Institution: | University of Warwick | ||||
Theses Department: | Warwick Business School | ||||
Thesis Type: | PhD | ||||
Publication Status: | Unpublished | ||||
Supervisor(s)/Advisor: | Webber, Nick | ||||
Extent: | xii, 219 leaves : illustrations | ||||
Language: | eng |
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