Abstract
This paper suggests a new and efficient variance reduction technique based on the Monte-Carlo simulation method for pricing the reinsurance contract in a regime-switching environment. The proposed approach extends the standard antithetic variables method to K>2 antithetic variables per replication of the Monte-Carlo simulation. Since the model under the regime-switching framework describes a market with arbitrage opportunities, a risk-neutral measure by Esscher transform is provided. Under this probability measure, the proposed estimator is unbiased for pricing the reinsurance contract and increasing K which leads to more variance reduction. Finally, the success of the introduced method is confirmed numerically, and the efficacy of contract parameters is evaluated on its price.
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