Exact simulation pricing with Gamma processes and their extensions

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	Exact simulation pricing with Gamma processes and their extensions
	James, Lancelot F.1; Kim, Dohyun 2; Zhang, Zhiyuan 3
刊名	JOURNAL OF COMPUTATIONAL FINANCE
	2013
卷号	17 期号:2 页码:3-39
ISSN号	1460-1559
英文摘要	Exact path simulation of the underlying state variable is of great practical importance in simulating prices of financial derivatives or their sensitivities when there are no analytical solutions for their pricing formulas. However, in general, the complex dependence structure inherent in most nontrivial stochastic volatility (SV) models makes exact simulation difficult. In this paper, we present a nontrivial SV model that parallels the notable Heston SV model in the sense of admitting exact path simulation as studied by Broadie and Kaya. The instantaneous volatility process of the proposed model is driven by a Gamma process. Extensions to the model including superposition of independent instantaneous volatility processes are studied. Numerical results show that the proposed model outperforms the Heston model and two other Levy driven SV models in terms of model fit to the real option data. The ability to exactly simulate some of the path-dependent derivative prices is emphasized. Moreover, this is the first instance where an infinite-activity volatility process can be applied exactly in such pricing contexts.
WOS研究方向	Business & Economics
语种	英语
出版者	INCISIVE MEDIA
WOS记录号	WOS:000330022400001
内容类型	期刊论文
源URL	[http://10.2.47.112/handle/2XS4QKH4/2041]
专题	上海财经大学
通讯作者	James, Lancelot F.
作者单位	1.Hong Kong Univ Sci & Technol, Dept Informat Syst Business Stat & Operat Managem, Kowloon, Hong Kong, Peoples R China; 2.Seoul Natl Univ, Stat Res Inst, Seoul 151878, South Korea; 3.Shanghai Univ Finance & Econ, Sch Stat & Management, Shanghai 200433, Peoples R China
推荐引用方式 GB/T 7714	James, Lancelot F.,Kim, Dohyun,Zhang, Zhiyuan. Exact simulation pricing with Gamma processes and their extensions[J]. JOURNAL OF COMPUTATIONAL FINANCE,2013,17(2):3-39.
APA	James, Lancelot F.,Kim, Dohyun,&Zhang, Zhiyuan.(2013).Exact simulation pricing with Gamma processes and their extensions.JOURNAL OF COMPUTATIONAL FINANCE,17(2),3-39.
MLA	James, Lancelot F.,et al."Exact simulation pricing with Gamma processes and their extensions".JOURNAL OF COMPUTATIONAL FINANCE 17.2(2013):3-39.