An introduction to multilevel Monte Carlo for option valuation

Higham, Desmond J. (2015) An introduction to multilevel Monte Carlo for option valuation. International Journal of Computer Mathematics, 92 (12). pp. 2347-2360. ISSN 0020-7160 (https://doi.org/10.1080/00207160.2015.1077236)

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Abstract

Monte Carlo is a simple and flexible tool that is widely used in computational finance. In this context, it is common for the quantity of interest to be the expected value of a random variable defined via a stochastic differential equation. In 2008, Giles proposed a remarkable improvement to the approach of discretizing with a numerical method and applying standard Monte Carlo. His multilevel Monte Carlo method offers a speed up of Ο(ε-1), where ε is the required accuracy. So computations can run 100 times more quickly when two digits of accuracy are required. The 'multilevel philosophy' has since been adopted by a range of researchers and a wealth of practically significant results has arisen, most of which have yet to make their way into the expository literature. In this work, we give a brief, accessible, introduction to multilevel Monte Carlo and summarize recent results applicable to the task of option evaluation.

  • Item type:Article
    ID code:55873
    Dates:
    Date
    Event
    11 September 2015
    Published
    26 August 2015
    Published Online
    28 May 2015
    Accepted
    Notes:This is an Accepted Manuscript of an article published by Taylor & Francis in International Journal of Computer Mathematics on 11/09/2015, available online: http://www.tandfonline.com/10.1080/00207160.2015.1077236
    Subjects:Science > Mathematics
    Department:Faculty of Science > Mathematics and Statistics
    Depositing user: Pure Administrator
    Date deposited:14 Mar 2016 10:30
    Last modified:08 Apr 2024 22:32
    Related URLs:
    URI:https://strathprints.strath.ac.uk/id/eprint/55873
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