Efficient Monte Carlo Simulation for Pricing Variance Derivatives under Multi-Factor Stochastic Volatility Models

Abstract

This paper studied the pricing of variance swap derivatives under the multi-factor stochastic volatility models by Monte Carlo simulation. Control variate technique was well used to reduce the variance of the simulation effectively. How to choose the high efficient control variate was also contained. Then the numerical results show the high efficiency of the speed up method. The pricing structure in the paper is also applicable for the valuation of other types of variance swaps and other financial derivatives under multi-factor models.